Seven Must Reads for the CRE Industry (Sept. 30, 2022)

Hurricane Ian could result in as much as $40 billion in property damage, reports The New York Times. Commercial Observer looks at how the Inflation Reduction Act will impact commercial real estate. These are among today’s must reads from around the commercial real estate industry.

  1. Hurricane Ian’s Devastation Shows the Challenge of Pricing Climate Risk “Hurricane Ian, now downgraded to a tropical storm, is expected to inflict as much as $40 billion in property damage claims and much higher total economic losses, RBC Capital Markets analysts calculated in an early assessment. Even though ferocious storms like Ian seem to make landfall with increasing regularity, insurers and environmentalists say that pricing the risk associated with these events will only get trickier.” (The New York Times)
  2. The Blackstone Rebellion: How One Country Took on the World’s Biggest Commercial Landlord “Blackstone started making major investments in homes shortly after the 2008 financial crisis, when tantalizing new opportunities emerged. The cheap credit that rolled across the world in the years before the financial crisis had allowed people to momentarily live out a dream. In the US, they bought sprawling houses that they could no longer afford once the carousel stopped. In Spain, where Blackstone would also set its sights, the entire country got drunk on the GDP growth that flowed from its bloated construction sector. In both places, a real estate bubble was sustained by nothing more than an expectation that property prices would continue to rise. When they started to fall, the results were catastrophic. But not for Blackstone.” (The Guardian)
  3. Biden’s Inflation Reduction: What’s in It for Commercial Real Estate? “The Inflation Reduction Act (IRA) is a climate bill by another name, and a historic one at that. The legislation, passed in August and signed into law by President Joe Biden, is designed to reduce the nation’s carbon footprint by jump-starting innovation and adoption of cleaner energy sources. In particular, the legislation is designed to reduce the nation’s carbon footprint by 40 percent of 2005 levels by 2030 — which is short of Biden’s original goal of a 50 percent reduction but still a major step forward.” (Commercial Observer)
  4. Overall Office Space Demand Sinks for Third Month in a Row “Companies continue to sort out how much and what kind of space they need as they emerge from the pandemic. In the meantime, new demand for office space fell for the third consecutive month in August, sinking below half of its average pre-pandemic pace, according to the latest VTS Office Demand Index (VODI) analysis. The national VODI fell by 6 VODI points, or 11.5 percent, from 52 in July to 46 in August, its lowest level since February 2021.” (GlobeSt.com)
  5. How to Know if a Building Will Deliver as an Inflation Hedge “Commercial real estate has long been regarded of an inflation hedge of sorts — but investors would be wise to do their diligence on demand dynamics and vacancy rates within individual markets, according to a new analysis from Nuveen. ‘Real estate can keep pace with inflation assuming it is the right building, in the right location with sufficient demand to support higher rents,’ Nuveen analysts write. The firm recommends focusing on asset types like medical office properties in high growth cities and suburbs, or single-family rental or multifamily assets in the Sun Belt.” (GlobeSt.com)
  6. New NYC Office Demand Craters Despite Leasing Activity Hitting Near Record Highs “New demand for office space in New York City fell for the third consecutive month in August, dropping by 23% compared to the month prior, according to new data from real estate software firm VTS. Demand for office space in NYC has reached its lowest level since February 2021 and is now 44% below its pre-pandemic pace, according to VTS.” (Bisnow)
  7. Industrious, AvalonBay Launch Flex Space for Residential Properties “There’s working from home, and now there’s having work at your home. Flexible workplace company Industrious and multifamily REIT AvalonBay Communities launched in Southern California this week what they call a first-of-a-kind partnership between a coworking operator and a residential developer. The concept, called Second Space, aims to bring “the workplace closer to home” to meet changing work habits accelerated by the pandemic.” (Commercial Observer)
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