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Yesterday, our New York reporter stopped by the Hilton New York for NAREIT's REITWeek, where we learned that two categories are driving Digital Realty Trust’s growth, according to CEO Mike Foust and CFO Bill Stein (with ISI Group’s Steve Sakwa, left). Corporate enterprises and IT departments are consolidating as a way to be more efficient and drive down costs, while more companies— especially small and mid-sized ones—are moving to the cloud. With uptick in new demand, Silicon Valley and Northern Virginia are balanced in supply/demand. Los Angeles is full, and DLR is looking for new opportunities there. California companies are expanding to Phoenix, and Dallas is attracting a wide range of demographics.
GGP's Sandeep Mathrani
General Growth Properties (owner of Stonestown Galleria) continues to hone its focus on Class-A regional malls (which account for 80% of its income), disposing of $2.5B and over 30M SF of Class-B malls, strip centers, and office space in 2011, says CEO Sandeep Mathrani. Now it’s all about leasing—currently, it has 86% permanent occupancy, with a stabilization goal of 92% by 2014. It’s also started $450M of redevelopment this year. All types of retailers are expanding footprints or number of stores, particularly international ones like Zara, Topshop, H&M, and Uniqlo. GGP will continue shedding office and strip space, and plans to let go of eight to 10 non-core malls while growing its Brazilian platform.
Considering the global economy, the US is doing well, according to (clockwise) Prologis Americas CEO Gene Reilly, CFO Tom Olinger, and co-CEOs Walt Rakowich and Hamid Moghadam. In fact, industrial has been the strongest it’s been since early ’08, with annual absorption north of 150M SF. E-commerce is a particular bright spot. Coastal areas like LA and South Florida are the strongest, with some already exceeding peak occupancy levels. Over the past year, we’ve seen upticks in Dallas and Houston, and we’re beginning to see signs of life again in Chicago. Large companies with strong balance sheets are taking advantage, so buildings 200k SF and larger are virtually full—something we didn’t even see during the peak.
Panama Canal
The expansion of the Panama Canal may mean more throughput to ports on the East Coast, including NY, NJ, Norfolk, Savannah, and Miami, but it doesn’t mean we’ll see a wholesale exodus from Los Angeles and Long Beach. It also doesn’t mean that real estate around the port areas will be winners—industrial will thrive in places where people are, like Atlanta, New Jersey, and Baltimore/DC.