CRE News Hour 9/20/2019

Automatic TRANSCRIPT

From the business desk at St Broadcast News this is the C. Arena news hour. I'm Steve Lubeck. It's Friday September Twentieth Twenty nineteen in this week's edition addition of the Sierra News Hour. We'll talk about the correlation between College Football Prowess and student housing values with CBRE's Jacqueline vits. We'll talk about a new emphasis on creative partnerships by co working companies with Brock Stress Burger of co Working Company convene and will look look at the latest performance trends in the data center market place with Bo Bond Jones Lang Lasalle. We'll be back with the top news stories right after these messages turn earn your podcasting passion into profits the book the business of podcasting describes the business side of podcasting including how to become a professional national podcast. You'll learn about position your clients expertise who podcasting to plus the best business models how to find clients and much more visit the the business of PODCASTING DOT com today. You can't wait for the media to cover your company Buzney. You have to be the media take advantage of the power of audio and video. It's the best way to showcase your expertise to prospective customers. Let the Lupatkin you bet can media companies handled the technical side. We're award winning audio and video producers. We can help you produce podcasts and video programs remotely or in our fully fully equipped studio in Cherry Hill visit being the media dot Com for more information. Thanks for joining us on the C. R. E. News Hour. We just like to make note of a new option on the show page for this episode you can click on the purple. Take the survey button right below the podcast player and share some information that will help us get to know our audience better. We'd also appreciate your considering financial support for the Sierra News Hour by visiting our our patron link and becoming a show supporter you can also leave a tip in the tip jar by clicking the blue quid button right in the middle of the podcast episode page and if you're interested in becoming a sponsor of the Sierra News our right to me at Steve at St Broadcast News Dot Com and we'll send you the rate card for advertising and commercials visuals now. Let's take a look at some of the stories that are moving Sierra markets across the country demand for design services in August took a markedly downward swing compared to July's has already soft score a new report released by the American Institute of Architects says the A as architecture billings index score of forty seven point two in in August showed a significant drop in architecture firm billings compared to July score a fifty point one any score below fifty indicates a decrease in billings. The design contract score also declined to forty seven point nine in August representing a rare dip for that indicator billings in the west state modestly positive while all other the regions remained in negative territory kermit baker is the AI as chief economist. The sizable drop in both designed buildings in new project activity coming on the heels of six months of disappointing growth in billings suggests that the design expansion that began in mid two thousand twelve is beginning to face headwinds currently the weakness is centered at firm specializing in commercial and industrial facilities as well as those located in the midwest however there are fewer pockets pockets of strength and design activity now either by building sector or region than there have been in recent years an important zoning change will transform the Fort Washington office park into a vibrant live work play location that will attract new businesses residents and investment. That's according to Ableson Young. The firm says a New Zoning Ordinance Ordinance adopted by the Upper Dublin Pennsylvania township in May will spur private investment and development in the Fort Washington office park that will have a profound effect on on the reimagined area making it hub of activity that will bring jobs and increased commercial property values the Greater Fort Washington Zoning Ordinance expands the permitted permitted uses in the former Employment Center district this will allow for multifamily residential and mixed use real estate to supplement the existing office commercial L. Institutional Light Industrial and recreational uses state senators and representatives from both major parties joined environmental groups in Harrisburg this week to urge Pennsylvania Governor. Tom Wolfe to move immediately on new rules to cut methane emissions in the Commonwealth. Methane is a powerful greenhouse gas but the federal. EPA wants to roll back regulations on emissions from the oil and gas industry. The Pennsylvania Department of Environmental Protection has proposed new rules rules to cut emissions from existing oil and gas facilities. John Wallace with the Pennsylvania Environmental Council says this week's event is proof of bipartisan support word for the EP Proposal Department has been working on this for some time but until the department puts it out for public comment initiative as a final regulation we need to keep moving the process us for a reason analysis by the Environmental Defense Fund found that the oil and gas industry and Pennsylvania's emitting five hundred twenty thousand tonnes of methane every every year methane is the main ingredient in natural gas at accounts for twenty five percent of current global warming WALSER points out that reducing methane emissions is critical to to protect Pennsylvania communities from the worst impacts of climate change. Pennsylvania is the number two producer of natural gas in the country and the federal government's. It's not gonNA lead on this issue then it's incumbent on the states to do so he adds that cutting methane emissions will also be critical to meeting the commitments in the governor's executive order on climate the issue in January walser says opening the comment period on Dep's draft regulations would let the Department get input from the industry the public and environmental mental groups to improve the final rule era few areas we would like to see them strengthened to make sure that they are addressing all the potential sources of methane emissions legislators at Tuesday's gathering emphasize that with the EPA withdrawing from the fight against climate change. It's up to Pennsylvania and other states to take the lead a new report from C. B. R. E. Says Pittsburgh's flexible office. Space inventory grew to six hundred sixteen thousand square feet by the end of the second quarter. That's an increase of one hundred twenty one thousand square feet or about twenty four percent from a year earlier and it's grown over two hundred fifty percent since two thousand fourteen flexible space now accounts for eight tenths of a percent of Pittsburgh's total office inventory up from six tenths of a percent a year ago. It's still below the US average one point eight percent that indicates that there's room for the sector to grow in Pittsburgh Mark Flexible spaces heavily concentrated in Pittsburgh's downtown sub market which accounts for thirty four point four percent of the markets flexible inventory space occupancy occupancy in US skilled nursing facilities remained relatively stable at eighty three point three percent in the second quarter. That's point five percent decrease from the first quarter but it's an increase of half a percent from a year ago. The data comes from the National Investment Center for Seniors Housing and care also known as Nick Knicks second in quarter two thousand nineteen skilled nursing data report showed occupancy declining in cities but increasing slightly in rural areas skilled nursing facilities are inpatient healthcare all care facilities for patients who need nursing rehabilitation or related services but don't require hospitalization a new study commissioned by the National Apartment Association Association and the National Multifamily Housing Council reveals that the apartment multifamily industry in its residents annually contribute more than three point four trillion dollars is to the national economy the report available at we are apartments dot. Org provides a detailed breakout of the economic impact nationally by state and and in fifty metro areas the new data shows how different aspects of the apartment industry positively affect national state and local economies residents spending contributes three trillion dollars to the US economy while operations adds another one hundred seventy five billion new construction contributes one hundred fifty billion and renovation and repairs ED sixty eight point eight billion among the highlights of the report all four sectors of the industry or posted very strong growth punctuated by the construction industry ramping up to meet the unprecedented demand for apartments this cycle reaching a height of three hundred forty seven thousand completions in two thousand seventeen up from one hundred twenty nine thousand nine hundred in twenty eleven anchor health properties recently closed on three class a medical office buildings totaling about one hundred and ten thousand square feet and secured the right to acquire a fourth with asset of forty thousand square feet. That's currently under construction in suburban markets in Atlanta Georgia the Newnan Professional Center one and two medical office buildings twenty twenty four. Oh One in twenty three zero one newnan crossing boulevard are strategically positioned next to Piedmont Healthcare's Newnan hospital one of the fastest growing inpatient hospitals in the health systems systems network anchor health will also have a right to acquire the adjacent Newnan Professional Center Three Medical Office Building when it's completed in twenty twenty the medical office building located at two fifty park place in Woodstock is anchored by northside pediatrics and North Atlanta primary care and is in a high growth community Nevada Fox field industrial the mid Atlantic armament via real estate ventures purchased twenty nine acres at nine Hundred River road in Conshohocken Pennsylvania in Ja Fox field industrial will demolish the existing chemical processing plant. That's occupied the site for more than thirty years. It then plans to build a Class A. Thirty six foot clear industrial property. It's going to call the king of Prussia logistics hub the properties in an infill redevelopment site in the king of Prussia of market with exceptional access access to interstates seventy six four seventy six and two seventy six king of Prussia prime for Class A industrial product with the average warehouse being more than forty years old and only having twenty-foot clear heights. You're listening to the CRE news hour from St Broadcast News News Dot Com all right. This is a story for sports fans who also happen to work in commercial real estate. It's about student housing and apparently student student housing linked to universities with elite football program gets the best pricing it also gets the greatest demand from investors who were drawn by the large inconsistent enrollments romance as well as stable cashflows that these properties offer this is according to the latest analysis by Cbre College Football Conferences are strongly early correlated with student housing capitalization rates. That's the valuation measure used in Commercial Real Estate to indicate investor interest lower the cap rate the greater the appeal Oh and value see exact opposite of what you want in your football score. CBRE analysis finds that student housing colleges with elite football programs trade at lower recap rates than properties serving colleges with lesser quality football programs joining us to talk about the analysis and about how sports plays into to the value of student housing is Jacqueline fits she cbre's director of National Student Housing Jacqueline thanks for joining us on the CRI News Hour. You've done a study for CBRE's student. Housing that indicates there's a link between the demand for student housing and the value of student housing and how well the school does in football. Tell us a little bit about what you found out sure happy to so what we found is that there's a direct correlation between the the capitalization rate when you buy the property and the power five universities so we've looked at the CAP rates that division one non power five universities versus Division One power universities and Non Division One and you'll see see that there's a distinct differential between the two where we're seeing cafe significantly lower those schools that are at the power five universities and I I think the correlations more interesting when you think about the type of enrollment growth that universities can potentially see when they win for instance the National Championship for Paul and that demonstrate how the power of football can help and within Roman growth enrollment fundamentals knows which then drives a more stable environment for supply demand for Sudan housing investment so it's interesting to me that that there's even this correlation and what does it tell you about the value of football programs for schools. I mean there's always a debate. you know when when schools are talking about where they you should be spending their money. there's one side this as we should spend it on academics and other side that wants to particularly alumni back constituencies they want to spend the money on Games and stadiums and all that stuff and this seems to suggest that at least from a housing perspective that the money's well spent does back to a lot towards the visibility of at the university when they are playing championship games or even you know on TV parts of Timeslot instead of on some random network if you will the visibility is there and then that drives student enrollment so what we've seen is applications will pick up first and foremost and then once applications because if they maintain the same admit admits admitted standards as before typically that's when you start with the enrollment grow but additionally if they start to tighten some of their standards as far as how how who they admit you start to see students that are higher quality and your input improving your student base which is another good indicator of a strong university that they'll definitely wanna see so there is that correlation between really the correlation is between enrollment growth and or better standard of student and and football which then leads to if your investment professional with the student housing real estate market okay to I'm more stabilized investment that will continue to have growth as demand grows for the university in enrollment continues to grow aside from the school related characteristics that make a a student housing property attractive more attractive. We're less attractive. are there other criteria like location or a nearby amenities that you factor into the evaluation so the biggest key word that we see in student housing investments is pedestrian assets versus non pedestrian so we really look at argue pedestrian to campus this can can the student roll out of bed and walked to campus or are they going to have to take a shuttle bus or drive so we've seen that spread differential in cal- great be approximately fifty fifty basis points through the first half of two thousand Nineteen so there is definitely that variable variable as you can achieve better Ild if you're looking to buy an asset that's non pedestrian but then the argument is for people that are focused on pedestrian assets that you can't heartbeat built within and so the demand will continue to be there for those pedestrian asset or their geographies that are are more favourable to student housing than others. Is it really more based. On what school is there or can you see a trend among student in housing developments in a particular geography so it's a good question we've seen typically that the largest number of transactions transactions at least within the housing sector occur in the southeastern part of the United States which are also some of the schools the SEC conferences being very strong conference for football. I'm and there's been a pretty large enrollment growth those universities as well so that contributed more investment in those markets and then definitely more transactions destroying some of those workers have less barriers of entry then other markets. It's as far as it relates to construction so I would say that that's the most typical area the other thing to consider with housing sector and overall all is where the population is still growing and one thing that we've seen is there are higher percentage of Hispanic students graduating from high school and going to college before so we seen in in states where there are high demographic ethic Hispanic Students the in there is more enrollment growth because a larger percentage of them are going to university after graduating in high school so states included in that includes Florida Texas California and those are some of the states where we also see strong enrollment fundamental when you look at the kinds kinds of student housing. That's being developed today. It's very different from the student housing of a decade or two ago talk a little bit about the differences is and what are the most popular features today when people are looking at building student housing so when this thing I kinda history a little bit history when the student housing sector was initially formed the majority of the product that was still was stick garden style located further from campus in but on large possibly and let less testing how would say as the market has evolved and become more institutional gene housing. I think sector as a whole and then also as rents have continued to increase we've seen more of a flight to developments that our closer to campus those pedestrian locations which tend to be projects that are much more dense in nature some having things like structured parking and not necessarily stick built so there has been in some ways a change from Ah the the garden style typical amenities you see to the urban style type of Amenities but I would say overall they they've called halted the amenities arms race in student housing. I mean we definitely have seen projects bill with golf's in simulators. I was at a property last week that had a snowboard and ski simulator that was a property in cal- in Colorado so you definitely sort of an a competition amongst developers on what they can build and what they are building but I would say the immunity that ultimately becomes the most used amenity and we've seen developers offers because of that desire and us really increased the volume of the study rooms so we've gone from you know one computer lab slash study room and older student housing assets to now student housing or stood steady rooms on every single floor building so we were really focusing on some of the amenities that the students actually appeasing and then just generally those the amenities that the parents when they're touring with their students really like saying and I gather they're spending a lot more time in the common areas like this study rooms then they did you know decades ago. People tend to live in these cinderblock towers and they would go into their room and that would be their sanctuary but now they tend to like to hang out with their friends in common areas. It's it's a little bit of both to be honest so the one thing that's different about the housing sector versus multifamily is that having is leased by the bed instead of by the unit and so there are a lot of instances where someone will come in with a with a friend and say we would like to run a four bedroom apartment and they're put into beds and then the other two beds are filled with strangers so in that instance we see when people releasing by the bed but not necessarily with a full unit of people they know they tend to thank more in their bedrooms when they're in their unit and then they go to the common areas to to be with their other friends because they're not necessarily necessarily staying in their living rooms because they're living with strangers so it's a it's an unusual situation that's becoming more common and we definitely see that transitioning with into the multifamily world with the micro unit concept with the you know the more the commentaries that people are using more frequently but really I think the concept is originated in some regards from what we see in student housing where people are renting a bedroom instead of unit and Sunday at least for a bedroom is the the demand for student housing largely driven by demographic trends in in that population in that age cohort or is it a bunch of other factors as well actually other factors so initially when the student housing sector really grew in volume from a transaction point we tripled in volume from two thousand fourteen to two thousand sixteen just overall volume for the the US housing market when that happened people were really chasing the additional yield that could be accomplished student so you saw student housing cop rates. It's between fifty two hundred fifty higher than what you see the multi family so I would say the initial flight to student was based on that yield premium that you'll premium has dissolved somewhat as more and more capital. It's come into space so now other people are looking at thing as a a diversifier within their portfolios because we do see that student housing definitely Ma- is what we call recession recession recession resilient people back to university when the job market is tough and because of that and that's the reason now most people are investing in the market. What are the factors you look at in terms of economic statistics to determine which way the market is going to trend in student housing other? Are there particular things you look at so we unlike multi see family where you're looking really good job data and where the population growth is coming from a Lotta what we we when we're doing research on any given university he is is a university master plan so many times universities obviously had to play into their infrastructure years in advance and so they're putting putting together these plans that include pinch enrollment growth potential on campus development so we're really looking at what Ah for the university is where the ultimate demand is going to be for the student housing based on the enrollment growth projection so it's interesting because because there there's some contradictory evidence that that that's not necessarily all that you need to look at. It's obviously the easiest and the biggest thing to look at because your demands coming from your student base but if you look at a market like Austin and University of Texas University of Texas is held relatively a constant with their enrollment for many years they don't have any room to grow their landlocked around the downtown area and the highway that is their next to the campus US and they're student housing has continued to thrive in that market even though there have been new developments and enrollment has stayed relatively flat a- and really that's driven by what's happened in Austin multifamily market where the Austin multifamily market has has gotten very strong rent growth has been phenomenal you know and it's driven those students that used to live in the multifamily market out of the multifamily market the permanent the by the unit leasing back into the the West campus market which is the pedestrian market to ut so while I still say the biggest factors enrollment it doesn't it's not always the only factor and you really have to focus on each individual university town if you will as its own little economy because there are so many different factors that can play into on top enrollment Jacqueline Fitz's. CBRE's director of National Student Housing Jacqueline thanks for taking the time to talk to us about the student housing market. Thank you very much the CO working companies aiming to outmaneuver each other a new emphasis is being placed on creative partnerships and how they can support differentiation of each brand convene which is a partner for commercial landlords and providing premium meeting in workplace solutions is announcing a new round of milestone allstone partnerships. They're working with th- Uzio the invitation only Sports Event Company and Eden Health and hydrate to bring onsite healthcare wellness and spa services to co working locations in New York and elsewhere joining us to talk about partnerships among co working companies and landlords is Brooke Doc strasburger his vice president and head of partnerships with convene brock. Tell us a little bit about convene and the premium meeting and workplace solutions you or providing adding to landlords and commercial buildings. How does that work convenient really first and foremost started as a meeting of Ending Conference Company about ten and years ago and really went to all the class a landlords and told them that we thought we could hope monetize the space a little bit differently that amazing buildings but within the buildings there was some you know little pockets of underutilized space for example a an H? Fact for or you know heating ventilation relation and air conditioning for that has lots of industrial equipment in it and we thought we could you know reposition these wars invest their own money and build out best in class meeting in a an event spaces and so we did that and that was kind of how we got the this scale to start diving into the the flexible workplace product as well so right now the meeting event and conference space accounts for about eighty percent of our revenue and we've started to wear around flexible coercion premium working that is on top of the more intricate infrastructure that we built for the event is. I wonder if you could explain a little bit more how you differentiate yourself from what people we now can call traditional co working space traditional is probably a little bit early for that but to how do you differentiate from companies that are doing purely co working space. Yeah I think kind of a nod to what I just mentioned before is is that we really have landlords at the core of our of our partnership viewpoint so we're looking at you know kind of activating the entire building as a whole and serving the anchor tenants and the employee and the rest of the building and not just within our own four walls so what I mean by that is you know we of course are working with the community and the members that are coming to work specifically in our spaces but we're also serving as a amenity the and and offering for the rest of the folks in the building to come and flex down into if and when they need it so you can imagine something like the the the Freedom Tower where Conde Nast as large anchor tenant they have of course their own cafeteria and they have lots of compensations and meeting space but we have you know very specific spaces that are larger we have you know really Enterprise Level Avian. It and just spaces that are very conducive to collaboration that they will actually flex down into and use kind of on top of you know the space they have within their own four walls went and if they need it no you're working with co working companies as well as with the landlords is at my understanding that correctly yeah so in terms of companies you mean companies companies that will work inside of a co working space or do you mean co working providers. I mean co working providers you are are you let me clarify. Are you providing co working space or are you working company. You are doing it yourself yeah. We're we're doing both so we have the meeting and event and conference business on one side of of our of our product offering and on the other we have the flexible workplace or premium co working offering and so we actually have one or multiple floors of both of those different products within within our stack and we're starting to weave in additional amenities as well so we might have one two three or four or five years of being an event space we might have won multiple floors of actual co working and that we are operating ourselves that is with you know under the convene umbrella and we're also injecting additional amenities services like fitness and wellness or primary healthcare cafes etc to Kinda round out the offering so you're the head of partnerships at convene. Why do you think why does the company think that making partnerships with co working companies with landlords these are important things to do to differentiate themselves yeah well we we kind of capitalize on our own strength of design hospitality culinary and technology and then we really partner on everything else we recognize that we're really good at certain things and that were never going to obsess as much as primary healthcare a company for example specifically on primary healthcare so I think we know what we know and we know what you know? Others are are kind of our better experts at and we want to keep those folks in so that the offering is the best that it can be and the entire concept of kind of this one stop shop or full ecosystem system within a building is is almost becoming table stakes these days so for those who are familiar with the New York area you might know a complex called Brookefield the place but for those who don't it's basically this amazing business complex that has a fantastic office space as great F. and B. Offering amazing amazing retail equinoxes childcare movies theaters golf simulators etc and so it has all these bells and whistles and so you can imagine that if you're another landlord with a building across the street that doesn't have all these bells and whistles that the retention of your anchor tenants my job or you might be forced to lower your we rates or if you have a vacancy it might be more difficult shell and so the concept of having all these bells and whistles under one roof is something that we're desperately chasing and desperately the wrong word but I guess that meant that we are we are we are very it softly chasing but but very serious about it becoming that becoming that kind of a minute station for the entire for the entire building so we're injecting our core competencies of the you a meeting event and workplace product and then layering on best in class partners in these other categories that kind of round out that offering and those other categories in the physical amenities standpoint. I'm point are the you know the FM be offering the primary healthcare the fitness the wellness potentially childcare potentially pet care etc and on the software side the things you're gonna be looking at stuff like concierge services or you kind of suite of or a library of you know perks offers and benefits that really benefit the community and make it a really pleasant place to work. Are we seeing a an arms race in the amenity entity the kinds of amenities that people are trying to put into a co working or into office space. you know it started with which we we really need to have a nice cafe where people can get free coffee from a coffee maker where they can get different flavors to all the way up to now. I think you're working with some companies to organize events where people can meet celebrities and sports the way that we think about it is is something that is sustainable and make sense for the community from a an experience standpoint but also makes sense for our stakeholders from a a revenue perspective as well to your your point about the the sports celebrities we are working with a company called Fujio who is doing some very interesting stuff and the future of client interchange and so we're typically thinking about companies that you know have a like minded missions and are being you know I'm kind of innovative in how they think about the future of a category that resonates with the audience met convene kind of interacts with within the building and so what I was I was saying on the back of that is that in general you know from a partnership perspective and also from a a real estate deal perspective. We're typically very thoughtful and how we think about it and we want there to be you know a good purpose in a good connection to the demographic but in that building and into the attendees with inconvenient versus you know kind of just doing a deal doing a partnership for Growth Sake or just sort of the partnership sake We Really WanNa make sure that makes sense confident current there. It sounds like we're we're reaching an age of a blurring of the lines between work and play We've heard some people talk about retainment that you need to have some kind of experiential retail thing going on to get people to go to traditional retail properties are we are we finding the same thing in the office space to people need to be entertained in stimulated throughout the workday in this I ah I mean it sounds kind of like that's what what's approaching. Yeah I mean I I think it kind of goes back to you know expanding beyond just the the cubicle life that kind of used to be the bare minimum now we're really thinking about how do we become. I'm not one stop shop and and how do we keep customers engaged for example we have fortune one thousand two may not necessarily how they headquartered presence in one of the metropolitan areas where we do or you have a company who is just overflowing doing and needs to kind of maintain a similar quality in their you know for their employees at a at a location that's nearby and so the Innovationlab of some of these fortune one thousands or actually starting to take foot inside of convene locations because they need something cool so they need something interesting. I mean need something different to keep their employees happy and to also retain talent or to even attract talent NGOs that they you currently don existing and so yeah I mean I think it is it's becoming table stakes. It's like I was saying before it's it's just in general the expectation and not only from the landlord's but from the employers and specifically from the employees is you know it's just changing and so we're trying to weed the weed the charge with with partnering with Stop Full Companies that are accretive to that specific experience in the workplace any new services. You're going to integrate the great beyond what you know the tradition ones that you talked about but are there any others that people haven't thought about incorporating into the workspace yeah I mean. I think there's there's a lot of folks who have thought through kind of what the physical amenities standpoint looks like we are close on on a on on Shell childcare concept we have worked at pet care. I have not seen that care in the co working round but it's something that you know you're hearing a little bit more and more of especially in areas like New York City SNB Is something that's interesting. obviously there's the standard kind of the ground floor retail world but there's a concept called Ghost Chechens that is starting to get a lot of traction and you've heard a couple of big names the tax base who have who have recently entered as well and we're looking at some exploration their kitchens so it goes catching is is effectively a commissary kitchen that builds out different bays for companies to come in and rent these these different ways so that they don't have to build a commissary kitchen on their own and so what I mean by that is you might have five thousand twelve thousand feet and you might have six to twelve different. FM be concepts in there renting smaller kitchen space so that they don't have to go and build a commissary kitchen on their around this is on the back of GRUB and seamless Lebanon and caviar and Uber eats and you know all these other food delivery companies that have started to drive more of a larger and larger percentage of these different smp retail brands you know kind of overall revenue stream and so these folks are starting to acknowledged that maybe they actually don't always ground for retail and instead they kind of position themselves around the the different regions where they get the most volume for delivery orders and bill but smarter and a little bit more efficient and so the interesting thing for us is it potentially allows us to have a cheaper view at building out one of our own kitchens while simultaneously providing a broader SMP offering to our members to the the rest of the building and also to the surrounding neighborhood what sounds very interesting and we look forward to seeing some more innovation in the space and thank you for taking the time Brooke yet. Thank you very much appreciate it. Brock Stress Burger is the vice president and head of partnerships for conven- we'll be back in a minute this is rabbi Richard Address join us for our podcast series from Jewish sacred aging entitled seekers of meaning will explore or some of the issues and events that impact ourselves our families and our Jewish world at large in light of the current revolution in Eiji the secrets of meaning podcast airs every Friday morning at eight. AM AT JEWISH SACRED AGING DOT COM do you can't wait for the media to cover your company. You have to be the media take advantage of the power of audio and video. It's the best way to showcase your expertise to prospective. If customers let the LUBEC in media companies handle the technical side we're award winning audio and video producers. We can help you produce podcasts and video programs comes remotely or in our fully equipped studio in Cherry Hill visit being the media dot com for more information the data data center industry so a slowdown in demand through the first half of two thousand Nineteen Jones Lang Lasalle is out with a global data center mid year report. It says that although demand for space remained robust internationally in twenty eighteen so far in twenty nineteen operators have recorded only two hundred under fifty six megawatts across major markets of absorption. That's down twenty three point eight percent from this point last year. Cloud adoption continues to accelerate the rate globally building off momentum from twenty eighteen the report also notes the majority of development activities occurring in established data center markets as operators around around the world expanded established product joining us to talk about the data center trends is Bo Bond Managing Director and Data Center Solutions Co lead lead four Jones Lang Lasalle. He's one of the authors of the report and we'll put a link to the report in the show notes accompanying this episode of the podcast both thanks for joining us on on the Sierra Newshour. The data center industry has been pumping along but you're now seeing a slowdown in the first half twenty nineteen year report suggests that things are down a bit from where they were last year. Tell us what's going on. And what do you think is behind it. We've seen at blow down down but I think everything's relative. Two Thousand Sixteen was record setting year or something. We've never seen before two thousand seventeen and eighteen extremely strong wrong didn't necessarily meet the sixteen numbers but at the end of eighteen we finished with again just shy sixteen numbers but given incredible numbers. The first first of nineteen has pulled back some and I think some of that is just ebbs and flows of potential you know buying opportunities within maybe the the cloud sector or the enterprise sector. I think also the enterprise the data center developer has deployed heavily their infrastructure out there they have bought land. They have brought building so there is a healthy supply so I think we're gonNA take a little time to absorb that supply and then you know if you look at the public markets you know in two thousand eighteen we returned probably of the big publicly traded reits in in and around. I think the number was roughly sixteen percent eighteen percent return but you get out in front of the first six months of two thousand nineteen and and we've seen numbers in the high twenties so all relative nothing to be overly concerned about. I think we just have an abundance of supply and some and core markets that with some good leasing activity we will eat into that inventory the or the absorption will right themselves and will continue to be the darling of that read industry. One of the things you're suggesting in the report is that most of the data center expansion expansion activity is happening or development activity. I should say is happening in expansion in existing product what's going on. Why are people finding it necessary to expand what are already in a lot of cases very large data centers? Well I think first off you know there's a lot of investment assignment into those platforms right into those data centers and so you know if you if you were to think that the network capacity that was brought in as a big number if you can expand in that footprint so you're not replicating another network. You're not replicating it another deployment well. There's a lot of cost efficiencies and savings is there so if you can expand in that same footprint by potentially taking down additional power that would allow you to deploy additional servers right in maybe in the hire you rack you can gain efficiencies that way but I think conversely we are seeing small deployment globally to be able to affect in fact a bigger network a global network gateway to the cloud so I think the expansions are just coming a little differently maybe than they have over the last couple couple years you talk in the report about recycling being one of the factors that spurring innovation what's happening with servers. Why are they being recycled and what are people spending money on in the new round of investment sure well you know if you were to talk talk to a you know a person that spend their days on the data center floor the equipment on their for those servers typically refresh every three to five years and since you know this data industry data center industry has grown at such a rapid rate there is such an aggregation of servers right that has reached? It's their useful lives in the industry has said Hey we really need to be good partners. We have greening initiatives. We need to be doing the right thing for not only our environment environment but for all also the cost effective model of running our entire platforms and so there we have found that we are finding adding these leftover equipment the equipment that's reached. It's end of useful life. They are really pushing it to a recycling company company and those companies are growing dramatically so that they are placed in the right areas right. We are disposing of that information Asian that equipment those cards properly so that we can check the box that there is no risk and third just for our climate right. We're taking them inboard. You're putting that into the appropriate avenues where we are not being wasteful. What are the things that people are doing with data that are driving the demand? Is it just more of the same only more of it or is it different kinds of data that people need to access and to WHO upload into the cloud well burke the great question I think as you and me as consumers of data we're consuming data more and more right right. Most of us are cutting the cord right. How we stream content video just personally is much greater than it had before the amount of information that we use on handheld devices how we bank how we trade how we look at insurance how we read our medical records all done and the digital fat format all these data transfer and so we as consumers just use data whether we know are not a much greater rate every year and then if you you think about the big Iot Internet of things as we all call it right? I can think about machine learning companies are utilizing that to be able to learn more to bring us consumers to drive business more so that data aggregation again is growing massively and so where's that going you kind of mentioned. There's a lot of that is going to cost effective model where it can go up into the cloud riot people have virtual servers but I think businesses today or looking looking at this information and driving decisions because they have the ability to do more with that information and make more concise decisions uh-huh on how they deploy capital who they market to how they protect data but make no bones about it. The amount of data is growing exponentially exponentially. Is there anything unusual and anything new in terms of data that that you're seeing people wanting to store you know I wouldn't say there's one specific item. That's driving it. I really wouldn't you can't just say it's just you know government regulation. You can't say it's a specific industry health care insurance or financial services. I can't say that we personally have just everybody cut the cord and now now we're streaming net flicks every day. I think it's a general aggregation of content information that driving this consumption of data are there specific areas that developers of data centers look most closely at and I'm talking geographic areas when when they're deciding where to locate a center I know we've seen some stories about how some of the big Google and Amazon data centers they tend to put near inexpensive of hydroelectric power sources and things like that is that still a factor for a lot of these data centers definitely your you know any anyone that would be building a data center whether it is a user or whether it is a multi tenant datacenter developer or you know an operator of sorts that's doing it on a speculative basis basis for their business there obviously building it as cost effective as possible right so the people that build on a SPEC basis they're going to the higher concentrations of markets where the users are deploying and so in the US that clearly northern Virginia because of all the connectivity that comes comes through Northern Virginia and how the cloud providers have all taken down a significant amount of space other major markets. You know where business happens. That's right New York Chicago Dallas for were Northern California Southern California Phoenix big business centers have have been traditionally where these providers have gone and as they started this the aggregation developing more and then you could say on a third category you know the people that the data center is their business where they have the ability to pick it up and put it anywhere in the country or the world and they don't have to be in a specific geographic area they have made those decisions to go to places that were they can find extremely inexpensive power hydropower right at two cents. you know those are are drivers but make no bones about it. There are only a few very big companies that can make those decisions to go in and all of us a fun term here of Cornfield Cornfield in Iowa right to go to you know the great Great Pacific North West you know on the High Desert Plain and access some of that real expensive power. A lot of companies can't necessarily deploy a production data center that far away from business centered centered do digest latency requirements right the the communication between those two points is too far and so that's why you continue to see them really in the major Metros which kind of leads into that other big discussion people talk about which is the edge one of the things. I've also I've seen a lot written about is the the data mining industry the people who were doing bitcoin and other kinds of crypto currencies in some cases taking over existing power generating facilities and turning them into data mining centers. How how do those developments factor into your data center analysis or do they at all is that as sector that you're either starting to watch her have been watching so I we definitely are in tune with that so the cryptocurrency is unique because it doesn't necessarily have the characteristics of a traditional data center it it it almost mimics more of a manufacturing facility of a warehouse of swords? They need a considerable amount of power and they have the ability to go to as you described you know a generation facility. They don't necessarily have that need to be in a major metropolitan area a close to significant connectivity to be able to connect to customers in the world so that's why you see sometimes they are in some of these remote areas they also have a lot more fluctuation and the ability to manage humidity temperature control etc because that that minor that that actual machine that minor might not have some of the sensitivities that away very expensive you know high compute server might have so they are if you were to see some of the mining facilities they might look very a crude or rudimentary and form but that's because of the aspect what's happening on that minor and those are actually you know those does does minors themselves. Are you know somewhat disposable. If one was to go down they just throw another one in there but you just don't have the control systems in in their from a power mechanical safety not necessarily safety security that you would see in a traditional regional data center where you might see you know insurance companies financial healthcare here more traditional type industry verticals where they have their data centers when you're looking at your economic dashboard. What are the red and green lights that you look at to tell whether the data data center industry is in for tougher times economically when you look out over the horizon bombers always the stock market and you know the six or six months of the year the publicly traded data rates have done very well so that gives me a green right there? If you were to look at the Global Data Center footprint there are countries that are less mature in their data center and they're connective than the US you know the first big data center push was here at home and so we've probably are a little bit more mature in some markets we probably have some markets where the supply might be a little bit greater than demand and so we we will have to have some absorption take place but I think there are a number of enterprises that are really needing to deploy across the globe because their business is global and they are reaching out into many different company countries to be able to play knows that will give them the ability to get to the cloud and that respective region so I think the international growth is probably greater than the US broke and a lot of these very large firms or becoming not only US data center firms arms are becoming global data center firms so you know if we weren't if they what's the red side of it. I just think there are some markets where we probably have a little more supply then some that would like but that was because there was a great race to the space there were people that were trying to deploy to chase customers and you might have just seen too many the people come into a market but if you look at the top markets we're still getting healthy. Absorption in the next four months will really know kind of how that supplies starts to whittle little down and really were the numbers are but I don't think it's something that we have to get overly cautious about. We just need to have exercise really a good proven business practices from where vestment goes from a provider's perspective and that you'll probably just a little less development in the next six to twelve months but I think it will pick back up absorption starts to pick up well. Thanks very much Bo- we'll put a link to the data center report in the show notes for this podcasts and we thank you for joining us. Thank you very much for having a bow. Bond is the managing director and Data Centers Solutions Co lead for Jones Lang Lasalle and that'll do it for this week's edition of the Sierra News Hour. Don't forget to check out our audience survey by clicking on the purple. Take the survey button below the PODCAST S. player on the show page for this episode and please consider becoming a financial supporter of our podcast by clicking the Patriarch Button if you have comments about our program or a story idea that you'd like to see us cover send me an email addresses steve at St Broadcast News Dot Com you can also leave us an audio comment by using the voicemail feature on the right side Bar of our website at St Broadcast News Dot com we produce this show in the state broadcast news studios in Cherry Hill L. New Jersey some audio in this program was provided by our content partner public news service DOT. Org for everyone at the Sierra News hour and state broadcast news

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