2016 is showing great promise in both updating commercial real estate trends, and adding new ones. The following are things to watch for this year:
1. Overseas Investment into U.S. Commercial Real Estate
The U.S. property market is among the most stable and transparent in the world. With growth slowing in Europe and China, foreign investors are flocking to back U.S. projects. According to the Commercial Real Estate Development Association, $91.1 billion was spent by overseas investors on U.S. transactions in 2015. That accounts for 17 percent of all deals. Most of the investors are from Canada. Since that country is lacking in dense populations and has limited resource investment, their citizens’ view the U.S. as a lucrative way to leverage their buying power.
2. Global Urbanization and Its Reverse
Millennials and Baby Boomers have something in common. They both want to seek out living space in metro areas. As they move away from the suburbs, they are looking for affordable units to rent or purchase. In addition, they need to find places to buy their groceries, get some exercise, and shop for household items and apparel.
Generation X and Millennials with children, however, are either staying in or moving to the suburbs. Promises of more house for the money, large green lawns and local parks and playgrounds are drawing them out. Once they relocate to the suburbs, they also need to get groceries, find places to exercise, and shop for household items and apparel.
Commercial real estate has an edge in both urban and suburban areas as builders try to meet the demands of bringing grocery stores, parks, gyms, recreation sites, and houses of worship, coffee shops, bookstores, and more to the market.
3. New Commercial Construction will be More Limited
Building new multi-family dwellings is diminishing. However, the need for senior and student housing is increasing. As these demographics look for affordable housing, they are considering new options such as the tiny house movement. In addition, cities are taking old abandoned big box stores and malls and are re-purposing them for uses that better fit this day and age. Gyms, recreation facilities, and even government offices now sit where old eyesores used to reside. The city leaders realize that often it’s much more cost-effective to remodel an existing structure, rather than invest in new construction.
4. Tearing Down Parking Lots and Garages
As metro consumers get used to using mass transit, more and more of them are ditching their autos and relying on goods and services that can be obtained through delivery or by walking directly to the retailers. They seek communities that are made up of mixed use dwellings, such as having a retailer on the bottom floor, and housing on the top floors. In addition, green space has become very important for city dwellers. They want a place to play with their kids, walk the dog, bicycle and roller skate. Since land space is limited, parking lots and garages are often torn down in order to make room for more buildings.
5. Increasing Stress on Retailers
The average consumer is having to pay more these days to use their credit card, and merchant processing fees are higher too. Reports suggest that on-line sales have triumphed over in-person sales, especially around Thanksgiving weekend. In order to combat this trend, retailers will have to create virtual shopping that combines with physical shopping. Major retailers are already being threatened by discount stores that carry quality, off-brand merchandise. Almost monthly, we hear about large companies such as Macy’s, K-Mart, and JC Penney that are closing stores. However, it seems that chain restaurants are expanding. Commercial real estate experts need to move quickly to fill those properties that have been abandoned.
6. Rising Interest Rates
If the Federal Reserve continues to raise the interest rates, the market will become more stable. However, it will also rule out the small business person who has dreamed of opening a small brick and mortar store. According to the Small Business Administration, small business owners own or lease between 30 and 50 percent of all commercial real estate space in the U.S. However, if these entrepreneurs and franchises can’t afford the rent, these properties will remain vacant.
7. Drop in Energy Prices
The price of oil has dropped several times this year. This draws consumers out of their homes, and encourages them to travel. Hotels, restaurants, attractions and city tourism benefit because they are hosting more guests. As for running businesses, consumers are seeing more profit in part, because their heating and air conditioning bills are dropping. This gives additional buying power, and they tend to want to go out to enjoy their surroundings more. This affects commercial real estate experts because they need to be sensitive to those establishments that are ready to add on to their existing properties.
8. Changes in Office Landscape
Americans are seeing change come to their workplace. Several companies support telecommuting. Others support desk-sharing. It seems that the bigger companies such as AT&T are doing away with the cubicles of yesterday, and are instead embracing a collaborative work space environment. Huddle rooms, quad shaped desk rounds that hold 4-5 workers, and a lack of dividing walls and walkways have become the norm. Commercial developers are watching this new trend, and need to be quick to respond with proposals for interior remodeling.
9. The Introduction of LEED
Along with the new trends in the workplace environment, companies are embracing “going green.” They are installing energy efficient thermostats, and water savings devices that will cut down on their carbon footprint. They are also trying to continue to go paperless and rely on a digital environment.
LEED stands for Leadership in Energy and Environmental Design. It uses 3rd party verification to verify that a building is “green.” In addition, companies are installing green space inside of buildings, and planting vegetation. Commercial real estate companies need to understand this trend and be ready to respond with sub-contractors that are knowledgeable in these fields.
10. The Advancement of the Internet of Things
Pretty soon, getting to the office, turning on the lights and heating up the coffee maker will be things of the past. With the internet of things, more and more “smart buildings” are being created. Special wiring will interface with digital technology to make the life of the consumer even easier. A worker will be able to turn on the lights in the office, start the coffee maker, and pan the security cameras from the comfort of his home. If he does decide to go into the office, he can remote in to his kid’s daycare, start the oven or the crock-pot at his home, and start his car, all from the touch of button.
As commercial real estate companies continue to study this trend, they need to be able to respond by having sub-contractors who are well versed in creating apps that allow building managers to remotely control the building resources and respond to requests to restock or send janitorial services on demand.
The world and its resources are changing around us every day. We, as commercial real estate industry professionals, along with our partners, are developing plans to meet and stay ahead of these trends and demands. We aspire to be the new leaders on the information superhighway and community advancements of tomorrow.