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Commercial Real Estate Lens: Need to Know

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The Ultimate Build-to-Suit: Amazon's Second HQ  Bloomberg

          IN SHORT: Attention, Mayors: Are you in a metro area with more than one million people considered to have high potential to attract and retain technical talent? Can you offer up to 50,000 employees access to bars, restaurants and dog-walking services? Do you have at least 500,000 sf of space for a new HQ, that could stretch up to 8 MSF? Are you prepared to offer millions in incentives? Apply here. Inc. already has a sprawling Seattle headquarters that attests to its size and ambition. Now the world’s largest online retailer plans to open a second North American campus -- dubbed HQ2 -- that Amazon says could be just as big as the existing one. The company is asking local and state governments to submit proposals for a development that will likely cost more than $5 billion over the next 15 to 17 years and give the winning city or town an enormous economic boost. Amazon is already one of the biggest employers in Seattle and expects the new headquarters to house as many as 50,000 workers, many of them new hires. Cities have until next month to apply through a special website, and the company said it will make a final decision next year. “We expect HQ2 to be a full equal to our Seattle headquarters,” founder and Chief Executive Officer Jeff Bezos said in a statement. “Amazon HQ2 will bring billions of dollars in up-front and ongoing investments, and tens of thousands of high-paying jobs.”
Amazon recently moved into a new 500-foot-tall office tower in Seattle, complete with 100-foot-tall orbs -- Amazon calls them Biospheres -- which will host more than 300 plant species from around the world when they open in 2018. The rest of the campus covers several city blocks and is housed in former industrial buildings.

Cities and local governments are expected to compete fiercely for the opportunity to become Amazon’s new base. In 2001 Boeing decided to move its headquarters out of Seattle for Chicago, after it was promised a series of tax breaks and incentives worth as much as $60 million -- for just 500 employees. For the new campus, Amazon said it’s looking for metropolitan areas with more than one million people -- locations with the potential to attract and retain technical talent. While the company has based itself in the heart of Seattle, where employees have access to bars, restaurants and dog-walking services, Amazon said it would consider a suburban location but said a multi-building layout similar to its Seattle home was also possible.

Amazon said staff at the new office could earn an average annual salary of more than $100,000. The first phase of the development, scheduled for 2019, will require 500,000 square feet, while the total requirement could reach 8,000,000 square feet beyond 2027. Amazon said it will let staff from Seattle move to the new campus. Expanding rapidly, the e-commerce giant is also opening fulfillment centers across the U.S. and the globe as it broadens its offerings from books and toys to groceries. On Wednesday, the company announced the first such facility for New York, one of 21 new U.S. warehouses announced so far this year that will employ more than 25,000 people. In January, Bezos committed to hiring 100,000 people in the U.S. over the next 18 months.

Last month, Amazon concluded a $13.7 billion deal to buy Whole Foods, accelerating its push into groceries and brick-and- mortar stores. Amazon already operates several college campus locations and has plans to open physical bookstores.

Draghi on Commercial Property Values, Tapering and the Euro  Bloomberg, FT

          IN SHORT: In today’s ECB press conference, head Mario Draghi noted that the central bank saw “stretched valuations in some markets,” such as commercial real estate, although perhaps the good news is that they “don’t see the other component of a bubble that accompanied the crisis in the pre- crisis time, namely an increase in leverage.” As in the US, “credit remains pretty subdued across the board.” He also noted that more information about tapering back its €60bn-a-month bond-buying scheme is likely to come next month. Elsewhere, he also noted the rise of the euro—suggesting that its strengthening is a “source of uncertainty” by reducing import-price inflation and dampening export sales.. Even so, his comments lifted the currency 1.1% against the dollar to 1.2046—the highest level since January 2015

Prime commercial-property markets in Europe currently have “stretched” valuations, European Central Bank President Mario Draghi said. Demand for office buildings, shopping malls and warehouses has soared as an alternative to fixed income because bond yields have dropped due to quantitative easing. Yields in the first quarter fell to record lows of less than 4 percent for the best office space in Europe’s central business districts, according to broker Savills Plc.
Draghi told reporters at a news conference in Frankfurt on Thursday that a decision on the “recalibration” of QE asset purchases beyond 2017 will be made in the fall. Local governments should use macro-prudential instruments to address any asset bubbles that emerge, the ECB chief said. “Even though we see stretched valuations in some markets,” such as commercial real estate, “we don’t see the other component of a bubble that accompanied the crisis in the pre- crisis time, namely an increase in leverage.” Draghi said. “Credit remains pretty subdued across the board.” While residential property prices have risen sharply in some large cities in the region, average growth rates at a national level have been lower, Draghi said.

The European Central Bank is to decide next month on how to phase out its €2tn quantitative easing program despite the complications posed by a stronger euro. The governing council on Thursday opted to keep the bank’s main refinancing rate at a historical low of zero. It also left its deposit rate at minus 0.4 per cent, in effect a levy on lenders’ deposits parked at the region’s central banks. Mario Draghi, ECB president, said policymakers had a “very, very preliminary discussion” about how to scale back its €60bn-a-month bond-buying scheme, focusing on different scenarios for the length of the program and size of monthly purchases and the effects of the different scenarios on the economy. The governing council did not discuss changing the type of asset it purchases, he said. Mr Draghi said the ECB expected to take the “bulk of decisions” on tapering at its meeting in October. Despite talking about the strengthening euro as a “source of uncertainty”, his comments lifted the currency 1.1 per cent against the dollar to 1.2046. The bank is widely expected to begin winding down its purchases from January, following improvements in the Eurozone economy and amid fears that Eurozone central bankers will run out of assets to buy. However, in his press conference Mr Draghi said that low interest rates would remain in place “well past the horizon of our net asset purchases”.
He also said the appreciation of the euro was weighing on the central bank’s considerations about scaling back its monetary stimulus. The stronger euro is complicating the ECB’s exit from its crisis-era monetary policies by reducing imported inflation and putting the region’s exporters at risk of falling sales. Mr Draghi said the euro’s recent appreciation was a “source of uncertainty which requires monitoring”. He said that whereas a few governing council members had flagged the issue in their July meeting, “most reiterated concerns” this time. The stronger euro has caused the ECB to revise downwards its inflation forecasts. It now expects inflation of 1.5 per cent this year, 1.2 per cent in 2018 and 1.5 per cent in 2019, below the ECB target of almost 2 per cent. In June, inflation was expected to hit 1.5 per cent this year, 1.3 per cent in 2018 and 1.6 per cent the following year. The QE program, which started early in 2015, is widely credited with reviving growth in the region and blunting the threat of deflation. A new estimate of euro area growth published by the EU statistics agency on Thursday showed that the region’s economy expanded by 2.3 per cent in the year to June — a higher figure than originally thought. The ECB revised up its growth forecasts, predicting 2.2 per cent this year, 1.8 per cent in 2018 and 1.7 per cent in 2019. In June, it expected growth of 1.9 per cent this year, 1.8 per cent in 2018 and 1.7 per cent in 2019.

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