We thought it'd be helpful for all of our CRE folks to take a look into what current trends and issues are affecting the industry in ways that can either help or hurt the overall flow of productivity and success. These issues are always up for debate but they are gathered from a variety of reliable sources.
It is almost impossible to discuss the connection between changing demographics and commercial real estate. The relationship between these two factors has a lot to do with demand. In other words, what the people need is what commercial real estate needs to offer. Take a look at two key age groups that are entering two different waves: the Baby Boomers (1946-1964) and Millennials (1980-2000). The impact these two groups will have on CRE all depends on their lifestyle choices that best accommodate their needs. Most Baby Boomers will opt to downsize their living spaces for convenience or seek assisted living options. Conversely, Millennials are more likely to hold off on buying homes and tend to digress in locations that are driven by amenities.
Urbanization in the realm of CRE is a broad term. It could refer to the growth of the urban population or point to the rise in corporations relocating in an attempt to "attract" younger working professionals. Either way, the shift of urbanization in terms of city population or relocation still affects what the CRE industry will invest its time on. For instance, if there is a higher demand in the urban locale, will that mean that CRE development will refocus efforts on shopping malls/centers to accommodate the younger urbanites?
As far as interest rates are concerned, there is always debate as to how federal hikes on interest rates will impact the CRE industry. According to Forbes, if interest rates are high then borrowers have to seek immediate refinancing instead of later in order to avoid another rise. However, some countries with negative interest rates like Japan are seeing a 10% rise in office rents this year.
The control of government legislation greatly affects the CRE industry. Government regulation of taxes and finances will inevitably impact CRE developers as well as investors. Among the many other restriction CRE faces, such as recent legislation restricting REIT spinoffs, laws that concern safety for endangered species or land use are also causing a ripple effect into CRE.
Personal lifestyle choices of consumers are not too far off from how demographics affect the scope of our industry. If a large amount of individuals choose to live in a two-tier city and help to develop thriving markets in fields such as biomedicine, technology, etc, then a steady market demand for investment and acquisitions will result for our fellow CRE members.
Foreign Capital Investments
Capital Investments from around the world has its own set of trends, but investments can occur in different cities in the U.S. depending on the market. According to information from National Real Estate Investor, foreign investments are shifting out of the usual core markets - such as New York and San Francisco. Lately, foreign capital flow is heading into cities like Boston, Washington D.C., and Denver. Even investors located in the Middle East, who usually put their money towards oil, are turning to luxury real estate in the U.S., and hoping to make a profit.
Infrastructure greatly affects CRE development plans. For instance, cities are seeking solutions to draw a link between accommodating the transportation needs of businesses and communities. In doing so, innovative infrastructure developments are underway in order to create sustainable and "attractive" physical environments.
When referring to socioeconomic groups, there's a large amount of focus on the gap between the rich and poor. At times, it serves its benefits, such as demands on both sides of the spectrum. The demand and gaps from the opposite classes largely affect the retail sector in CRE. The middle class is disappearing, after all, and it will take strategic planning to develop projects, which will satisfy target markets. Oh yeah, maybe that's why affordable housing projects are looking so promising to investors right now!
Changing retail models remains as a concern for the commercial real estate industry. Similar to other trends and changes, the old school conventional retail setups are rapidly changing as traditional retailers are upping the ante to better compete with online retail giants like Amazon. According to the CRE fed, a poll revealed that 10-15% of shopping centers are now "functionally obsolete." Good news for those looking to invest in storage units or industrial properties, which can serve as packaging/shipping centers!
We ranked technology as the biggest and most influential factor impacting the CRE industry. Surprise, surprise. Technology is most likely the fastest changing factor and the quick pace is a challenge for most industries to parallel. The demand for office space has taken a big blow in recent years because of technology. The irony here is that as technology becomes more innovative and flexible, less conventional work spaces increase. That results is a less demand for physical/personal office spaces… and the trend is likely to continue.