This is Part 12 of a multipart series, please see past posts for context – Part 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11. Visit JharrisPHD.com for all past articles, biographical information, and photography portfolio.
When Demand for Labor Exceeds Supply
In early 2018, the number of total job openings exceeded the total number of unemployed persons in the United States as measured by the Bureau of Labor Statistics; as of Summer of 2019, this gap as swelled to over 1.625 million more jobs than the total number of seekers. As unemployment sits below 4%, the labor market is exceedingly tight in the United States right now. It is rare for an economy to operate with more job openings than qualified workers, in fact this occurrence has not appeared since before the year 2000. The reality is that many of the firms seeking workers cannot find them, and those who are left unemployed are not qualifying for the open positions. This is a natural result of several forces. First, the persistent growth in the domestic and global economy since the cessation of the Global Financial Crisis; second, the increased specialization of labor given technology; and third, the shifting demographics of an aging workforce. While the economy is still prone to cycles, the second and third trends are likely to persist for decades to come.
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This is Part 11 of a multipart series, please see past posts for context – Part 1, 2, 3, 4, 5, 6, 7,8, 9 and 10. Visit JharrisPHD.com for all past articles, biographical information, and photography portfolio.
The Integral Role of Regulation in the Economy
The United States, as almost all advanced economies, relies on a complex web of regulatory apparatuses to guide and control much of the economy and the daily functions of businesses and personal lives. These regulatory systems are comprised of laws passed by federal and state legislatures, rules and regulations promulgated by government agencies, precedents and orders decided by judicial rulings, and even private self-regulatory groups such as trade associations (often endowed with quasi-governmental power). Thus, if regulatory systems are not functioning well, then it is logical that the economy will function inefficiently, not achieve maximum productivity, and suffer a range of unintended or undesirable consequences. Today, it is beyond obvious that the current regulatory apparatuses are ill-equipped and ill-suited for today’s fast paced, technology laden world; this misalignment will have interesting impacts on the real estate investment and development industries for decades to come.
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This is Part 10 of a multipart series, please see past posts for context – Part 1, 2, 3, 4, 5, 6, 7, 8, and 9. Visit JharrisPHD.com for all past articles, biographical information, and photography portfolio.
Infrastructure and Real Estate Values and Returns
When assessing the value of a site, for any use, there are at least three common factors to consider. First, proximity, what and who is near (sometimes this is called demographics or trade area analysis). Second, accessibility, how can the site be reached via primary and second modes of transit (think walk, drive, train, air, etc.). Third, visibility, how easily can the site the buildings built upon it be seen and recognized by those it hopes to attract as tenants or those tenants’ customers. All are a function of the quality and availability of the infrastructure that serves any given site. Thus, if the infrastructure fails or declines in quality and usability, expect the value and investment potential of the property to do the same. The real estate industry needs to recognize this fact and factor it into investment and development decision going forward as the US is facing greater and greater risks of failing infrastructure.
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This is Part 9 of a multipart series, please see past posts for context – Part 1, 2, 3, 4, 5, 6, 7, and 8. Visit JharrisPHD.com for all past articles, biographical information, and photography portfolio.
Rise of the Global Citizen and Global Traveler
With the proliferation of air travel, moving around the globe has never been easier, or cheaper. In fact, the average price of a domestic ticket in the US has fallen 40 to 50% since the ‘60s and ‘70s in real dollar terms. A natural result of deregulation, increased competition (and the rise of low-cost carries), improved airplane technology, and increased load factors (i.e. a full flight can better cover costs than a partially empty one). The price declines on trans-oceanic travel can be even more dramatic, especially when “sale” fares can make ocean crossings as low as sub-$500 round-trip. The result has been a steady, yet fast climb in the number of people traveling and the distance they travel each year. According to the World Tourism Organization, international arrivals reached 1.33 billion in 2017; this was only approximately 400 million in 1990, meaning global travel rose at over 4.5% annually for at least 27 years. Further, this growth is only expected to move faster and faster for the next ten years and beyond as a natural result of rising middle and upper-middle classes in nearly all parts of the world.
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This is Part 8 of a multipart series, please see past posts for context – Part 1, 2, 3, 4, 5, 6, and 7. Visit JharrisPHD.com for all past articles, biographical information, and photography portfolio.
Who are the Dual-DINKs?
If you study demographics, you are already familiar with the term DINK. For those new to the game it stands for Dual Income-No Kids and refers to households with two effective income earners and no children under the age of 18. The commercial real estate community tracks DINKs as they tend to demand multifamily-rental housing (a commercial asset class) at much greater propensity than their child-laden or single compatriots. As an aside, the two income earners need not be married for this concept (see Part 7 on the growing roommate phenomena). With two incomes and no kids, there is a larger budget for rent as well as for travel (hotel demand) and retail expenditures (especially at food and drinking establishments). When you think about the hip, walkable, mixed-use retail/apartment development you can be guaranteed DINKs will be a good majority of the residents and consumers of the nightlife. But, what people fail to consider, is that there are actually two sets of DINKs, and they have differing but often very similar demands in terms of real estate needs.
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This is Part 7 of a multipart series, please see past posts for context – Part 1, 2, 3, 4, 5 and 6. Visit JharrisPHD.com for all past articles, biographical information, and photography portfolio.
Roommates Rule in Many Rental Housing Markets
Household formation and household composition can be a complicated business. There are so-called “traditional” households with two married adults and a varying number of minor children and then there is the fairly easy to define “single” adult household. The more complex situations are where two or more adults share a living unit but are not legally married; this could be the common situation of an unmarried but otherwise romantically paired couple or it could be the complex arrangement known as “roommates.” Long before Uber, AirBnB, or even the now popular “co-working” office, roommates may have been the earliest human rendition of the “sharing economy.” Roommates typically share rental housing units for the purpose of economy of scale, cost savings, and to have a sense of home-life community. Zillow released a major study in 2017 and found that the share of US adults living as roommates reached 30.0% in 2017, up from 22.1% in 2000. Not surprisingly the rate is higher in high cost markets like NYC, 40.0% in ’17 up from 32.7% in ’00; LA 45.5% up from 37.4%; and Miami 41.0% up from 30.1%. It has also grown in markets with larger shares of younger adults and more transient job bases like Orlando, 35% up from 22.8%.
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This is Part 6 of a multipart series, please see past posts for context – Part 1, 2, 3, 4 and 5. Visit JharrisPHD.com for all past articles, biographical information, and photography portfolio.
Changing the Game in Raising Capital
The 2010s will be remembered for many trends, most fueled by the stark reality of the post-Great Recession recovery. Others will be known from the birth of new technologies and business models. The democratization of finance is perhaps the biggest sleeper story of them all. Historically, raising capital meant asking friends and family to contribute equity, applying for difficult to qualify for loans at national and community banks, and/or draining personal savings and retirement funds while running up balances on high interest rate credit cards. For those with “change the world” ambitions, angel investors and venture capital funds offered access to potentially limitless funds, but the costs were near and complete total loss of control and even ownership. In short, raising capital was risky and very costly. These avenues are still viable options, and are still risky and costly, but they are no longer the only means of accessing vast sources of capital.
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This is Part 5 of a multipart series, please see past posts for context – Part 1, 2, 3 and 4.
Your Neighborhood Warehouse
Amazon announced this month that it will advance its standard “two-day” free shipping plan to a “one-day” shipping plan for Amazon Prime subscribers. While the reduction of a single day may not sound like a lot on a grand scale, it is a major reduction in time the e-commerce giant has to get merchandise to a shopper’s door after a “buy it now” click has been registered. Accomplishing this goal will not be easy or cheap, Forbes reports that Amazon will spend $800 million in Q2 alone as part of this initiative with more spending to come. Why is it so expensive and difficult? Because it means that more and more goods must be pre-positioned near everyone’s’ home if they are to execute this plan in any cost feasible manner. This means we all must have a neighborhood amazon warehouse, and that means a lot of warehouse leasing and construction must take place in the years to come.
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This is Part 4 of a multipart series, please see past posts for context – Parts 1, 2, and 3.
A revolution or a fad?
WeWork has announced a confidential filing to go public, a long-awaited move that will open up more transparency into one of the most interesting real estate business plays seen this decade. The core business of WeWork and its competitors is offering Space as a Service (or SaaS). They do not purport to lease space by the traditional fixed-address, long-term contractual method common in commercial real estate. Instead they offer shorter-term flexibly defined contracts that have more in common with hotel stays and gym memberships than property leases. They bundle services, furniture, and even offer access to a community ecosystem. This represents a very different way to provide office space than historically done. Thus, the question many in the real estate industry ask, is this a revolution or a fad?
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Joshua Harris, PhD 