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Q2 2017 Edition

Securing Commercial Spaces
Kurt Emshousen

Cover Story
Data Centers:
The Modern Fortress Evolves

C. Andrew Marcus and Todd Smith

Security and Property Management
Robert Bridges and Jon Weems

Protect Your Leased Space
Jerry Allen

Economic Growth Continues
Jonathan Chambers


Transwestern is a privately held real estate firm of collaborative entrepreneurs who deliver a higher level of personalized service – the Transwestern Experience. Specializing in Agency Leasing, Tenant Advisory, Capital Markets, Asset Services and Research, our fully integrated global enterprise adds value for investors, owners and occupiers of all commercial property types. We leverage market insights and operational expertise from members of the Transwestern family of companies specializing in development, real estate investment management and research. Based in Houston, Transwestern has 34 U.S. offices and assists clients through more than 180 offices in 37 countries as part of a strategic alliance with BNP Paribas Real Estate. Experience Extraordinary and @Transwestern.

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Infrastructure Security

A Message from Kurt Emshousen

As technology advances, we must continually take stock of our preparedness and the safety of the human and intellectual capital within the properties we occupy, lease and manage. This edition of Insights explores the security of commercial space by:

  • examining the management of secure properties and preparations for natural and man-made crises;
  • weighing the tools available to protect leased space and control workplace access; and
  • reviewing the layers of physical safeguards at data centers, perhaps the most secure facilities in the private sector.

The workplace is no longer defined by walls alone, and the most pervasive threats to our clients and their businesses today are virtual. We recommend training each team member to recognize and report phishing attempts to IT security, who can dispose of these malicious communications without inadvertently activating links or downloads.

“The most pervasive threats to our clients and their businesses today are virtual.”
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And while we embrace innovations that enhance efficiency by linking building mechanical systems, lighting and myriad devices on the Internet of Things, we must protect this infrastructure with the same diligence that guards corporate servers. Segmentation of the network through advanced firewall configurations is a wise investment that will thwart hackers seeking network access through building automation and maintenance technology.

We take seriously our responsibility as a trusted real estate advisor, and we continue to invest in the resources and personnel that enable us to provide safe and productive workspaces. By doing so, our team members, clients, tenants and partners can come to work every day and focus on what they do best.


Kurt Emshousen
Chief Administrative Officer
The Modern Fortress Evolves

C. Andrew Marcus
National Director
Data Center Solutions
Todd Smith
Chief Technical Officer
Data Center Solutions
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Data centers are among the most secure structures in the private sector, reflecting the importance of safe data storage and processing to modern culture. Yet even information technology (IT) professionals are often unaware of the latest advancements in the rapidly evolving data center industry.

As recently as 2000, companies had few options for hosting computer systems beyond housing server racks, phones and file storage within their own office suites or buildings. The exorbitant cost of high-capacity telecommunications made remote data centers impractical for most business applications.

The past 15 years have brought dramatic advancements in storage and the data speeds available from internet service providers (ISPs), along with a proliferation of third-party data center developers. A number of experienced firms now offer multitenant co-location and other managed infrastructure solutions on a global basis.

Today’s companies enjoy a range of data center options, many of which reduce on-site hardware requirements and management cost while dramatically increasing security and reliability. Here are a few common strategies and associated benefits.


Some companies still choose to host IT infrastructure in a standard office building, although this strategy is waning with the increasing availability of third-party data centers.

On-site hosting risks water damage from a leaking roof, fire suppressors or plumbing. Power interruptions are another consideration. And unlike other data center options, a conventional office building is unlikely to offer advanced security. A locked door and sheetrock won’t slow a determined intruder with a sledgehammer.

Few organizations can isolate the cost of an on-site facility without third-party assistance. Power, maintenance, internal labor and real estate expenses are spread throughout the organization.

“Co-location offers the benefits of redundancy and professional management.”


In most major markets throughout the world, companies can choose from among competing data center operators that offer highly secure space for lease in large, multiuser facilities. These come with highly efficient and advanced climate control, redundant power feeds and backup diesel generators to keep clients online 24/7/365. ISPs typically offer premium connectivity at best-in-market rates to these locations where their customers cluster.

Layers of physical security commonly include controlled vehicle access, key card entry and around-the-clock guards and monitoring. Safeguards between the building entrance and the client’s leased space can include fingerprint or retinal scanners, conventional locks, or mantraps. The latter is similar to a rotating door and is designed to reduce the chance of someone slipping through a security point behind an authorized user.

Co-location offers the benefits of redundancy and professional management that typically only the largest of companies can afford to provide for themselves. The user still maintains control of its IT hardware.

By eliminating capital expenses for some equipment purchases while achieving efficiencies of scale and operating focus, co-location typically provides companies with a cost-effective solution. Experience has shown, however, that co-location users frequently contract for unneeded capacity and other benefits, with the average customer overpaying by approximately 40 percent to obtain the services they require. This highlights the opportunity to contain costs through a better project scope analysis.

Built to Suit

Many of the same firms that operate co-location facilities will build and operate free-standing data centers to suit the user. They may assist with defining requirements for power, cooling and redundancy; negotiate with governmental entities for zoning and permitting; and coordinate with utility companies and data carriers.

Some firms specialize in building these facilities for major companies needing large-scale, private sites. While this provides the user with the greatest degree of customization, control and privacy, this option typically entails a higher cost and lengthier timeline than using multitenant facilities.

“Safe, cost-effective data maintenance can be achieved through a number of avenues.”

The Cloud

With a virtual data center, the user outsources some or all aspects of application hosting and delivering. A company operating on an outsourced, cloud-based system essentially turns over some or all of the keys to a service provider. This choice takes advantage of the provider’s computing, memory, storage and bandwidth, as well as its cybersecurity and physical security measures.

Over the next five to seven years, Forrester Research Inc. projects corporate IT groups will be up to 40 percent smaller due to widespread moves to the cloud, as it eliminates the need for many mundane tasks the groups perform today.

Cloud computing may not work in industries with conflicting compliance regulations or for firms desiring direct access to hosting equipment. That said, many providers now serve specific verticals such as healthcare and banking, forming a rapidly maturing service set for industries that have been slow to adopt any form of IT outsourcing.

For each of the general product titles explained here, there are a multitude of data center variations, and safe, cost-effective data maintenance can be achieved through a number of avenues. To maximize value, companies should determine their existing data center platform’s cost of ownership and reliability, then compare the market’s available options for a similar or enhanced service level. Perform this analysis at least biannually to ensure the current platform aligns with the organization’s needs.

The firm’s current arrangement may be the most effective from a cost and business-impact standpoint. Considering the recent pace of change in technology and cost structure, however, that is seldom the case.

C. Andrew Marcus
C. Andrew Marcus
Todd Smith
Todd Smith

C. Andrew Marcus and Todd Smith lead the Data Center Solutions practice at Transwestern.

A Vital Component of Effective Property Management

Robert Bridges
Executive Managing Director
Asset Services
Jon Weems
Property Manager
Asset Services
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Security practices in property operations have advanced remarkably since 2001. Properties today are more likely to employ multitiered access control systems and to prepare response protocols for a variety of threats and emergencies. Depending on the tenant’s preferences — or in the case of financial institutions and some other industries, government-mandated security requirements — the management team follows a written protocol that spells out how it will provide security and incident response.

“Lobby ambassadors are trained in the customer-service skills of the hospitality industry as well as crisis response.”
Special Events Call for Heightened Awareness

In an era when terrorists clamor for exposure, high-profile events at or near a property require extra vigilance from property management, security personnel and even tenants.

Before Super Bowl 51 in Houston earlier this year, Transwestern team members at MetroNational’s 13 office buildings in the Memorial City area prepped security guards and tenants to minimize risks associated with the Atlanta Falcons staying at a nearby hotel.

The asset protection manager for MetroNational’s 3.4 million-square-foot portfolio briefed property managers to expect extra vehicle traffic as fans sought to catch a glimpse of players around the hotel, and to watch out for suspicious activity. In particular, property teams kept an eye out for anyone who might be tracking the Falcons’ movements or scouting the positions of law enforcement officers stationed around the property.

The management team for MetroNational undergoes this type of awareness and response training regularly. Examples include teaching receptionists how to respond to hostile customers; workplace violence identification and prevention; access control protocol and awareness; holiday security awareness; and even a course on staying safe and secure while out in public.

For some buildings, measures include around-the-clock monitoring and recording dozens of camera views, along with physical and electronic measures to prevent unauthorized entry to restricted areas. Not all properties exercise that degree of watchfulness, but there is a common goal of vigilance that drives most building security programs.

A uniformed guard or off-duty policeman seated behind a lobby desk may not convey the same sense of safety to building occupants that it once did. Progressive landlords are more likely to retain a third-party contractor to staff the lobby with highly trained, professionally dressed personnel known as lobby ambassadors, who serve as both security and concierge.

These gatekeepers are trained in the customer-service skills of the hospitality industry as well as crisis response, and their dual roles are closely aligned. An enthusiastic lobby ambassador will instill a positive mood in people entering the lobby, just as a hotel concierge would seek to do. But this greeting serves a dual purpose: They learn to recognize the building occupants, which elevators they use, and their usual arrival and departure times.

Making eye contact and engaging people is more than customer service; it is a key practice in screening for threats and detecting suspicious behavior. And with the current trend of incorporating retail and gathering spaces into the lobby, increased activity levels require more active engagement and movement through the space in order for security personnel to notice potential threats, such as packages left unattended.

Indeed, the entire management team today rehearses its responses to bomb threats, active shooters and other crises once deemed too remote to merit special training. Property and security team members must act in synchronicity, achieved through joint training. Owners and occupiers expect this level of sophistication from those entrusted with the safety of commercial buildings.

“When incidents threaten tenants’ safety, having the right tools, team and procedures in place is essential.”

Regularly practiced fire drills remain a mainstay at any building, but these exercises also prepare managers, engineers and even groundskeepers to assist in various types of evacuation. They may direct occupants to interior corridors during a tornado, for example, or to various positions of safety on or off the property, depending on the scenario.

In the event of an incident, security and building management assist law enforcement or fire officials in any post-event investigation, and systematically review their own performance during the crisis. These after-action sessions identify lessons learned, enabling the team to plan improved responses to future events.

It’s worth noting that cross-training goes both ways. That is why third-party security personnel at Transwestern-managed properties participate in specialized customer-service training. This innovative approach to customer service, called The Transwestern Experience, is deeply embedded throughout the organization and focuses heavily on safety, efficiency and positive touchpoints with clients, tenants and partners.

Pragmatic landlords should consider investing in technology such as public address and video surveillance systems, and choose third-party security providers wisely. When incidents threaten tenants’ safety — and they will — having the right tools, team and procedures in place is essential to an effective response.

Robert Bridges
Robert Bridges
Jon Weems
Jon Weems

Jerry Allen
Senior Vice President
Engineering and Construction
Asset Services
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Leased offices come equipped with basic security measures, but it is chiefly up to the tenant to choose the systems that will safeguard employees and property. And as more companies streamline office layouts by eliminating reception desks, they must replace this traditional method of screening visitors with alternative strategies. Fortunately, evolving technology and competitive pressure on prices have placed an unprecedented assortment of tools at their disposal.

“Evolving technology and competitive pressure on prices have placed an unprecedented assortment of tools at tenants' disposal."

Security is essentially access control. The goal is to allow authorized personnel into a building, room, computer network or other sensitive space with as little inconvenience as possible, while keeping out everyone else. The systems a company uses to achieve that goal will depend on its particular requirements and budget.

Once installed, an access-control system must be inspected by the local fire marshal. In case of a fire or other emergency, a person anywhere in the building must be able to exit, unimpeded by locks or barriers and regardless of their security clearance. That means locks with electronic controls must default to unlocked in the event of an emergency or power outage. Consult building management and refer to local building codes for details.

Here is a brief rundown of the protective measures a tenant can consider adding while finishing out or renovating space.

Keyed Up

In the 1970s, keyed door locks were the industry standard for securing everything from a trophy cabinet to a trophy downtown office tower. Key systems can provide degrees of access through the use of individual keys for limited access and master keys for individuals with greater clearance.

While they are still a good option, keys pose challenges that increase with the number of locks, clearance levels in the system, and number of keys issued. Numbering keys and careful tracking, including the recording in an individual’s personnel file which specific keys they carry, will help to minimize security risks and costly mistakes.

When an employee is terminated and fails to return their key, for example, knowing their key configuration makes the difference between rekeying the lock to that person’s old office or having to reconfigure every door accessible by the master key.

Scanners Advance

The 1980s brought access cards to commercial buildings. Initially a magnetic identifier encased in plastic, the early versions were thick, cumbersome, expensive to replace and, if carried in a wallet, tended to erase the magnetic strips on nearby credit cards.

The 1990s brought lighter, non-magnetic cards, typically for limited-access areas within tenant suites. By the mid-90s, integrated systems operated by third-party contractors would allow entry to the garage, exterior building doors and interior spaces using a single card.

Some of today’s card systems use proximity readers, capable of identifying an embedded microchip from several feet away. Sensors can recognize the toll pass in a tenant’s vehicle for garage entry, for example, or unlock an elevator lobby’s doors when an authorized employee approaches.

Employers can even link vending machines or the checkout station in the company cafeteria to the security system, enabling employees to make purchases with a wave of their identification card.

Biometric readers, which scan fingerprints or retinas, are available to the private sector but are still rare, due mostly to the price of equipment and the necessity of contracting with a service provider. However, the pace of change in the security business is swift, so this is an area that may gain more traction in the months and years to come.

Barriers to Entry

Keys and cards help to keep honest people honest, but they may not stop a determined malefactor from waiting for a door to open and skirting in after an authorized person passes through. Subway-style turnstiles, rotating glass doors or other physical barriers working in tandem with keyed or carded access can address this vulnerability, at the cost of altering the building aesthetics or potentially slowing the passage of authorized personnel.

Some organizations even extend the barrier concept throughout the perimeter of a space, adding steel plates or decking within walls, floors and ceilings to thwart attempts at entry through the sheetrock.

Camera Considerations

Cameras available today offer color, high-resolution and digital recording that can extend the security team’s view throughout the property. It is worth noting that security cameras create an expectation that the camera is monitored. Failure to do so could expose the organization to legal liabilities. We recommend consulting with legal counsel concerning the placement and use of security cameras.

“A competent contractor can help plan the security for a new space or retrofit.”

To guide decision making, a competent contractor can help plan the security for a new space or retrofit, providing cost estimates and expected delivery schedule allowing for required inspections for fire and building code compliance. The good news is that security technology is more advanced, available and affordable than ever before.

Jerry Allen
Jerry Allen

The National Economy: First Quarter 2017

Jonathan Chambers
Senior Associate
Delta Associates
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The protracted economic recovery continued into the opening months of 2017 without losing any momentum. We expect consumer spending to continue to be the bulwark of the national economy in 2017, although business spending has shown signs of picking up as well.

Gross Domestic Product (GDP)

Real GDP growth was moderate in the closing quarter of 2016, tallying an annualized 1.9%, which was a significant decrease from the strong 3.5% expansion in the prior quarter. Personal consumption expenditures again accounted for the large share of economic growth, supplemented by increases in inventory investment, real estate investment, and spending from state and local governments. After a strong third quarter, net exports retreated back to negative territory, holding back overall economic growth. A decrease in federal expenditures also hindered growth.

The most recent report from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters projects real GDP growth at 2.2% in the first quarter of 2017. Looking further ahead, GDP growth is expected to be 2.3% in 2017, 2.4% in 2018, and 2.6% in 2019.

Job Growth

The health of the nation’s labor market has continued to be robust into the opening months of 2017. During the 12-month period ending February 2017, the U.S. economy added 2.35 million new jobs. Of the total, 2.14 million jobs were added in the private sector, while the public sector added 208,000 jobs. The positive growth in January and February extends a prolonged period of positive job growth stretching back to 2010. As of February 2017, the national economy has extended its streak of positive job growth to a record 77 months.

The Education/Health Services and Professional/Business Services sectors continue to lead employment growth, accounting for roughly half — 1.16 million combined — of the nation’s job growth in the 12 months ending February 2017. Leisure/Hospitality has also been a strong employment growth sector, adding 286,000 jobs during the same period. The Construction/Mining sector rounds out the top four employment sectors with 191,000 net additions, as real estate construction in most domestic markets continues to be robust. Combined, the four top sectors added approximately 1.5 million new jobs to the U.S. economy, accounting for roughly 69% of all new additions.

Job gains over the year were positive in every sector except Information, which has struggled with tepid growth during the current recovery period as traditional publishing companies have experienced dwindling revenue streams. The Manufacturing sector, which has been hurt by weak exports and the long-term trend of outsourcing manufacturing overseas, did post marginal growth of 11,000 net additions during the 12 months ending February 2017.

Public sector job growth has trended sharply upward over the past two years after a long period of stagnation. There were 208,000 government jobs added during the 12-month period ending February 2017, compared to 154,000 jobs added during the 12-month period ending February 2016. The rebound in public sector hiring has been driven primarily by state and local government hiring, although federal hiring picked up significantly in 2016. State and local governments added 166,000 new jobs during the 12 months ending February 2017, while the federal government added 42,000 new jobs nationwide during the same period.


The national unemployment rate (seasonally adjusted) stood at 4.7% as of February 2017, compared to 4.9% at February 2016. The unemployment rate has gradually dropped from a recession-high of 10.0% in October 2010 and is currently at a level that most economists consider full employment. In 2017, we expect the unemployment rate to oscillate in the 4.7% to 5.1% range as labor force participation grows.

Initial unemployment claims plunged to extremely low levels in 2016 and continued to fall further in the opening months of 2017. According to the Federal Reserve Bank of St. Louis, the four-week moving average of initial claims fell to a new low of 234,250 in the week ending February 25, 2017 — the lowest level since 1973 — before ticking up again slightly to 237,250 as of the week ending March 11, 2017. We don’t expect unemployment claims to erode much further than their present levels as there is little slack remaining in the labor market.

Wage Growth

Growth in the national average hourly wage has been picking up over the past few quarters, and it increased by 2.8% during the 12 months ending February 2017, which is still somewhat lower than 3.0%+ annualized gains prior to the recession.

The majority of existing wage growth is being driven by high demand for skilled workers; there remains a shortage of workers with the technical skills required for positions in many industries, including Healthcare, Life Sciences, and Construction. Employers have been forced to increase compensation to attract the most qualified workers, although wage growth is beginning to pick up for workers in entry-level positions as well.

Corporate Profits

During third quarter 2016, corporate profits before taxes showed signs of robust growth totaling $2.14 trillion, up from $2.01 trillion during second quarter 2016 and up from $2.10 trillion a year prior. Healthy consumer spending is the major driving force behind corporate earnings across most industries. Weak exports and low energy prices have hurt company profits over the past year or so. Additionally, meager growth in productivity coupled with increased hiring has cut into profit margins. Looking forward, corporate profits should stabilize in 2017.

Housing Market

Home prices in the 20 major metro areas covered by the S&P/Case-Shiller index increased 5.6% in 2016, exactly the same as in 2015, but still far below this cycle’s peak of more than 13% in late 2013 and early 2014. The rate of price appreciation has flattened out somewhat as rising inventory has begun to catch up with strong demand. Despite the expanding supply, the number of homes on the market relative to the number of households is still at its lowest level since the 1980s.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage increased significantly to 4.30% in March 2017, from 3.73% in March 2016. In 2016, 30-year rates bottomed out at 3.42% in October, which was the lowest since April 2013. The average commitment rate for all of 2016 was 3.65%, compared to 3.85% in 2015. We expect the 2017 annual average to be significantly higher (at least 50 basis points). The Federal Open Market Committee (FOMC) has stated that more frequent rate hikes are planned in the near term, which will increase monthly mortgage payments and may discourage some home buyers.

Interest Rates and Inflation

The FOMC raised the federal funds benchmark rate for just the third time since the 2008-2009 recession at its March 2017 meeting. The long-awaited increase was prompted by sustained job growth, low unemployment, and strong consumer spending. The quarter-percentage-point increase to the 0.75% to 1.0% range followed an increase of the same amount implemented at the December 2016 FOMC meeting. The March 2017 rate increase is the first of three anticipated for 2017.

Inflation has begun to strengthen after remaining well below the 2.0% Fed target for four years. Consumer prices ticked up a robust 2.5% during the 12 months ending January 2017 — the largest 12-month increase since November 2011. Increasing energy costs was the biggest driver of price inflation during the period. The personal consumption expenditure price index (PCEPI), which takes into account changes in consumption habits as people substitute some goods and services for others, rose 1.9% during the 12 months ending January 2017. For perspective, in 2015 the CPI and PCEPI increased 0.7% and 0.2%, respectively; in 2016, they increased 2.1% and 1.6%, respectively.

Economic Outlook

Three months into 2017, the strong recovery of the national economy is showing no signs of decelerating. Job growth remains persistently strong, unemployment continues to be at a structural low, consumer spending remains robust, and financial markets continue to linger in record territory. In addition, 2016 brought improvement to some long-stagnant economic metrics including inflation and wage growth. While there is still lingering uncertainty surrounding the new presidential administration, most policies should have an expansionary impact on the economy, and we do not believe that a recession is imminent this year.

We expect consumer spending to continue to be the bulwark of the national economy in 2017, although business spending has shown signs of picking up as well. GDP growth for 2017 and 2018 is projected to remain modest (between 2.0% and 2.5%). We expect job growth to remain positive, but gradually decline through the remainder of the year as the supply of skilled workers dwindles. Unemployment, for all intents and purposes, has bottomed out, and we expect it to remain in the 4.7% to 5.1% range (seasonally adjusted) through 2017. Wages finally started to show material growth in 2016, and we expect the trend to continue as workers gain leverage in the tightening job market.

We project that inflation will remain above 2% in 2017, driven largely by rebounding energy prices, despite higher interest rates and a stronger dollar. The Fed should follow through on its plans for two additional 0.25% increases in the federal funds rate before the end of 2017 as greater inflation takes hold. Higher interest rates will dampen the momentum of consumer spending somewhat, but not substantially, as higher wages will provide an economic offset.

Jonathan Chambers
Jonathan Chambers

Delta Associates

Note: As of March 2017, the Bureau of Economic Analysis had not reported U.S. corporate profits for the fourth quarter of 2016.