Infrastructure improvements, the mismatch of housing and jobs in urban areas, and the global unease surrounding political polarization were the most prominent issues that emerged from the latest Counselors of Real Estate (CRE) survey.
The CRE deploys this survey to its members every year to uncover the biggest issues the industry will be up against.
The ability to own a home for the middle class is expected to become even more difficult with increasing interest rates and inflation, factors which will also make relatively high earners stuck in the rental housing cycle for longer. Political polarization concerns such as resurging nationalism, threats to the EU, and the looming debacle with North Korea simultaneously hinders longer term issues such as infrastructure, affordable housing, and education.
Outlined below are several of these identified trends.
1. Demographic shifts
Latest projections dictate that millennials will ultimately act in ways similar to that of baby boomers, except with a time lag of roughly ten years. The two largest generations in the U.S possess different challenges and needs in relation to housing. This is a factor which can get quite complex when both groups need to share living spaces.
Boomers are transitioning towards an experience oriented lifestyle, regularly renting in the same properties as younger generations and abandoning suburbs by downsizing and heading for city or suburban areas. Younger renters and buyers with rental budget limits are marrying and settling in the suburbs at a later life stage. A trend which means that property developers, investors, and owners are faced with several factors that need to be considered in order to appeal to the preferences of both groups. Property location preferences is a big thing, resulting in the increasing conversation around mixed use developments to cater for these different needs. Commercial, public spaces, and residential living spaces now need to be designed in such a way to support the demands of the contrasting generations and provide sustainable solutions and desired amenities.
2. Technology boom
In 2016, $2.7 billion was invested in commercial real estate startups, with more than 1,600 real estate startups globally. Big data and access to real time information will fuel future developments. Tenant requirements are changing in harmony with technological advancements – such as the demands for less parking and improved digital infrastructures such as internet connectivity. Further advancements impacting property sales include the phasing in of robots to many industries, the rise of autonomous vehicles, the popularity of smart buildings and smart building devices and the introduction of new modes of transport.
Consumers are also advancing in their sophistication and favorability towards service providers who leverage the latest and greatest technology. As such service providers, particularly those who work within the commercial contractor segment like roofers and solar installers, should ensure they stay ahead of the trends to remain competitive.
3. Changing Retail Habits
As the world becomes increasingly digital, it is no secret that traditional brick and mortar stores along with large amounts of shopping malls have born the brunt of this. However, many are putting up a fight and are engaging in the e-commerce approach of purchasing warehouses, and investing in distribution and logistics models. E-commerce giants like Amazon also continue to monopolize the industry, for example their latest acquisition of Whole Foods Markets. Conclusions to be drawn from the relationship between retail and commercial real estate is that retail is certainly not dying, but merely changing and owners need to be prepared to offer more consumers experiences, for example converting current stores into climbing gyms – a concept which is referred to as “omnichannel” stores. Properties within short proximity to these omni channel, mixed use type businesses will be in high demand. It is clear retail disruption is a high determining factor when it comes to property values. A final conclusion is that unused vacant retail spaces and ghost malls now represent hidden gem opportunities to property developers and investors to get creative with.
4. Infrastructure Investments
The infrastructure plan published by the Trump administration indicated that funds would be directed towards public transportation and other important infrastructure enhancements. Projects of this enormity usually occur when unemployment rates are high, something that fortunately isn’t a major problem. The U.S is currently boasting an unemployment rate of 4.3 per cent, the lowest since 2001. Questions being raised include where these infrastructure workers are going to come from and how much will they need to be paid? This will be good news for commercial contractors alike, for example commercial roofers and providers in the HVAC space as business demands will increase.
With these new projects, commercial opportunities for fund management plus benefits for ports and communities that contribute to global transportation routes will also rise to the surface. Increased infrastructure naturally means more jobs , increased revenue for people to purchase property, better transport links to housing and work areas, creating more public space hubs and mixed use developments outside of cities.
5. Real estate as a new player in health care
As of late, it is no secret that real estate has emerged as a major influencer in the rising trend of cost-efficient ways to replace expensive hospitals. 24-7 urgent care facilities and surgery centers are examples. In addition to this, real estate professionals are shifting interests towards healthy buildings or “WELL certified” buildings. On a global scale, more than 450 projects in 28 countries have been implemented, while in the U.S California has been the highest adopting region so far. With an increasing demand for health initiatives to produce happy and healthy employees with the aim of reducing employee churn and increasing productivity, property developers and investors would be wise to adapt to this trend and consider including it in their development plans going forward.
With ever changing issues affecting the real estate industry, technological tools that can help commercial real estate professionals bypass these issues and/or still remain competitive are in demand more than ever. Tools like Reonomy which can help a wide range of professionals from investors, property brokers and commercial service providers to source off market hidden gem properties and identify new business opportunities are a must. With a 99 per cent national coverage rate, Reonomy houses information for 47 million commercial properties in the U.S, all of which can be downloaded in real time based on your own tailored searches.
Want to stay on top of the current issues facing real estate this year? Sign up for a free trial of Reonomy today.