Architect Slump Hints at Further Challenges Ahead for CRE

Plus: Food halls, traditionally centered in urban areas, are swiftly expanding to suburbs, with developers tapping into the emerging hybrid work trend and burgeoning foodie culture.

Architect Slump Hints at Further Challenges Ahead for CRE

Plus: Food halls, traditionally centered in urban areas, are swiftly expanding to suburbs, with developers tapping into the emerging hybrid work trend and burgeoning foodie culture.

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Good morning. The Architecture Billings Index, a leading indicator of CRE investment, implies a slowdown into 2024. Meanwhile, food halls, once urban staples, are making a mark in the suburbs.

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*Data as of 10/23/2023 market close.


Architecture Downturn Signals Trouble for CRE

Bad news for commercial real estate: Architects report a big drop in business

Construction workers erect a building in downtown Miami, Florida (AFP, Getty Images)

In September, architecture firms witnessed a significant decline in business, suggesting potential challenges ahead for the commercial real estate sector.

Architectural indicator: The AIA/Deltek Architecture Billings Index (ABI), a primary metric for Commercial Real Estate (CRE) investments, showed a troubling dip in September, particularly in the multifamily billings sector, which saw its fourteenth straight month of decline.

Writing on the wall: The graph below traces the Architecture Billings Index from its inception in 1996. In September, the index dropped to 44.8 from August's 48.1. A score below 50 signifies diminishing demand for architectural services. It's important to highlight that this index covers a range of structures including commercial and industrial buildings like hotels and offices, multifamily homes, and institutions such as schools and hospitals.

Architecture Billings Index

Commercial real estate is navigating some rough waters…

  • There's a noticeable lag in returning to offices, which doesn’t just impact the demand for office spaces. Local businesses, like cafes and retail stores that rely on office crowds, are also feeling the pinch. Additionally, rising interest rates are complicating investments and deal finalizations.

  • Geographically, the effects vary. The West, in particular, is undergoing a pronounced downturn, largely attributed to its slower pace in office return. The multifamily residential sector, which previously saw robust growth, faces challenges with an oversupply, pressuring rental rates.


Challenges ahead: The Architecture Billings Index, typically a leading indicator of CRE investment, implies a slowdown in CRE investment into 2024. Multifamily is experiencing a significant decline due to the oversupply of units, which may impact the future of apartment construction. CRE is facing a double whammy of a slow return to office and high interest rates, affecting architecture firms and suggesting a bumpy road ahead.


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  • Opportunity knocks: In its Q3 earnings call, Blackstone (BX) addressed predictions for interest rates and investor sentiment, highlighting the firm's war chest and its focus on alternative assets like credit, insurance, infrastructure, and life sciences.

  • Making moves: Former executives from Simon Property and Westfield, Larry Weinstein and Max Talpalar, joined New York brokerage Capricorn Retail Advisors to drive the company's expansion in the retail sector.

  • Data breach: Miami-based home builder Lennar (LEN) experienced a cybersecurity breach, exposing the personal information of over 7,400 customers, with names and Social Security numbers compromised.

  • Economist's insights: Apartment rents have declined for five consecutive months, and's Chief Economist, Danielle Hale, expects rent growth to stay quiet in 2024, with supply being the dominant factor affecting prices in the rental market.

  • Softening self-storage: Self-storage is facing headwinds, including softening demand, leading to negative rent growth as it mirrors trends in migration and home sales.

  • Automating property management: AI platforms are rapidly transforming property management by automating tasks such as lease administration and work order requests and providing insights for strategic decision-making.

  • Landmark deal: Blue Owl Capital acquired the Big Lots distribution center in CA’s Inland Empire for $219.1M, the largest single-property industrial deal in over two years in the top warehousing market in the US.

  • Seattle surge: Puget Sound is set to add over 10,000 new apartment units in 2023, with 31,637 more units in the pipeline, though a rising vacancy rate and declining property values are impacting the market.

  • Housing clash: Residents of Milton, an affluent Boston suburb, are divided over a new state law requiring zoning changes to allow for more multifamily housing, sparking a debate on identity, community dynamics, and local governance.

  • Foreclosure fiasco: A10 Capital is pursuing foreclosure on the Melrose Crossing shopping center in suburban Chicago, alleging a $10.8M default and improper handling of finances by Top Rock Holdings.

  • Multifamily mortgages: Multifamily mortgage debt increased by 7.1% in Q2, reaching over $2.T, with pension funds witnessing the largest increase in apartment mortgages.


Food Halls Emerge as Prime Real Estate Gems

Food halls, traditionally associated with bustling urban centers, are now marking their territory in suburban landscapes.

A modern take: Unlike the typical food courts found in highway rest stops or older shopping malls, food halls curate a distinct experience. They often shun national fast-food chains and outdated seating in favor of spotlighting local restaurateurs, craft beers, and contemporary aesthetics. Customers can expect to find ethnically diverse offerings, whether it's a gourmet sandwich, West African meals, or dishes reminiscent of Asian open-air markets.

Explosive growth: The number of food halls has witnessed a dramatic surge. From just 35 a decade ago, the U.S. now boasts at least 364 food halls with over 120 more anticipated by next year's end. Once concentrated in metropolises like New York City, they now find homes in places like Omaha, Grapevine, and even the small town of Selma. A driving factor behind this proliferation has been the pandemic, which saw many shift to suburban living and remote work, sparking a demand for quality dining experiences closer to home.

Ingredients for success: For food halls to thrive, they require more than just good food. A popular bar and events like live music or trivia nights help draw crowds beyond the regular lunch hour. However, the journey isn't without obstacles. Critics argue that food halls can feel impersonal, lacking the hospitality of traditional dining establishments. Plus, the upfront costs for owners can be significant, including setting up each kitchen and handling utilities and maintenance.


Zoom out: Food halls are not merely places to grab a bite. They represent the evolving dynamics of our society — changing work patterns, the blending of urban and suburban lifestyles, and a growing appreciation for diverse culinary experiences. As they adapt and innovate, they stand testament to the resilience and inventiveness of the dining industry.


📊 SURVEY: Take our 3-minute Fear and Greed Investor Index survey to help us understand investor sentiment in today’s market.

📖 READ: The fight against global tax evasion is gaining momentum, with progress in reducing offshore tax evasion, though challenges remain in areas like real estate conversions and profit shifting.

🎧 LISTEN: This episode of Bisnow Reports explores the imminent threat of a WeWork (WE) bankruptcy and its potential impact on CRE, focusing on major markets such as New York and London.

📊 DOWNLOAD: According to Lee & Associates, demand for industrial space in the US and Canada persisted in Q3, but this year's growth has slowed compared to the previous two years.

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Yardi 200 Prelease Curves

In September 2023, student housing preleasing for the Yardi 200 was at 95.1%, slightly below 2022 but higher than previous years. Despite a 0.9% drop in rent growth from its March peak, rents are at $846 per bed, an average YoY rent growth of 6.3% during the leasing season.

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