Spencer Levy- CBRE's DC Area Perspective (#14)

Updated Information and Bio

From Episode #12

Part 3 of 3 Mini-Episodes

Washington DC Area Perspective

In this third segment of our conversation, Spencer Levy overviews the Washington DC markets by product type after discussing CBRE's offices there and in Baltimore. We "flyover" each of the product types with local, national and international trends relating to the DMV. He concludes with what he believes are the "5 Factors of Awesome Markets" as he calls them. Here are more specific notes and timeline:

• Washington, DC; Tysons Corner, VA; Bethesda, MD; and Baltimore office
• Number of offices not as important as client services quality (3:30)
• Office Market Trends (4:30)
  • Big Picture- "New City Locations"- (4:50)
    • Move from CBD to Wharf or Yards
    • National Landing- Only city in US where airport is walkable from major office node (5:15)
  • Concentration of "Old School" Tenants vs. "New School" Tenants (6:45)
    • DC has more "Old School" and has not relocated to "New City" locations as yet
    • 3rd best tech market in US (7:40)
      • #1 "Brain Drain" market where degreed people moved away
  • Short Term Occupancy- WeWork, Industrious (8:55)
    • Co-working here to stay (only 2% of total space now) (9:25)
    • Expectation between 6.5% to 22% eventually (9:50)
    • Overestimating Millennial demand (10:20)
    • Infrastructure affecting demand (10:58)
  • Law firm contraction (12:20)
    • Report about Law firms (12:45)
    • No law library, copy machines & infrastructure (12:55)
    • Law firms competing with tech firms for employees (13:20)
    • Work space used for retention of employees
  • GSA (14:00)
    • Cost conscious and same trends as law firms
• Retail Trends (14:30)
  • "Bloody nose for wrong reason" not e-commerce but demographics (15:00)
  • Softness in urban retail due to capital markets issues (15:25)
  • Bullish on retail due to "merging with industrial" (15:50)
  • Example of Best Buy- Combined retail with warehouse (16:10)
  • Dynamic of "credit and cool" in combination in retail nodes (17:00)
  • Mixed use component critically important
  • Best Dept. Store in world is Harrod's in London- Destination (18:15)
  • Target and Walmart- Discount store works (18:30)
  • Virtual "Live Work Play" environment being creative (19:00)
  • Mall retrofit in some locations (19:50)
• Industrial Market
  • Cold Storage (21:10)
  • Big Box distribution (21:25)
  • Last Mile distribution (21:50)
    • Smaller facilities- close distribution and flex office/warehouse (22:15)
    • High density multi-story industrial- rents approaching office rents (22:40)
• Apartment Market (24:00)
  • Report- Age of the Responsive Real Estate (25:00)
    • Multifamily only getting better for many reasons (25:30)
  • Affordable housing crisis is a human made catastrophe- Political will (26:00)
    • Change zoning to densify housing- Minneapolis did it; however California killed it so far (26:15)
    • Self inflicted (27:10)
  • Market rate short term vacancy from over building (27:20)
  • New development will continue (27:40)
  • Rent control is "self defeating" and will limit supply (27:55)
  • TOPA has some negative affects but he would trade it for rent control (28:45)
  • Solve public school problem and zoning constraints (30:40)
  • Hotelization of multifamily- (31:25)
    • Greater operational risk in real estate (32:30)
    • Hyperamenitization (32:40)
    • Capital markets implications- Valuation question of whether it is residential or hospitality (32:50)
  • Operational risk has been "stripped" out of business (34:50)
  • "Scrambling for yield" (35:00)
• Senior Housing (35:15)
  • Elder person mobility affect that move to senior housing (36:00)
  • Technology gives "aging in place" a better strategy (36:50)
  • Negative equity on homes keeping people in place (37:00)
  • Cost of employment extraordinarily high (37:40)
• Student Housing (38:50)
  • Value of student housing- "big town football team" is important (39:15)
  • Strength of underlying university (39:40)
  • Timing of occupancy critical and operational risk (40:00)
• Data Center
  • Event recently (40:30)
  • Price per KW hour coming down (40:40)
  • More data centers and demand (41:00)
  • Need to understand market and operations
• Talent- DC has the best in the country and will drive "new" type uses (42:00)
• Infrastructure (42:40)
  • Two great airports
• Health Care
  • Biotech growth (44:00)
  • Fragmented market- spreading to get closer to patients (44:25)
  • Bullish based on need (45:10)
• Universities are perhaps the biggest drivers in most major markets (45:50)
  • No better multiplier of real estate value than near universities (46:30)
  • UMD Innovation Center (47:45)
  • Purple Line through College Park (48:10)
• "Headline Risk Equals Opportunity" (48:50)
  • "Don't pay attention to international issues- pay attention to local issues" (49:10)
  • 5 Factors of Awesome Markets (49:20)
    • Talent
    • Live Work Play
    • Infrastructure
    • Ease of Doing Business
    • Foreign Money

Other References

This episode was recorded prior to the COVID 19 spread in the US in March, 2020. On March 26th, Spencer Levy was recorded in another podcast that addresses his perspective on the markets since the virus has virtually stilled the US economy. Here is the link to that episode: "Leading Voices in Real Estate"