Land use and commercial real estate’s demand-supply dynamic are set to experience a significant change by the time the year 2030 rolls around. Given the almost daily technological advancements and changing consumer behavior, commercial real estate professionals should reevaluate their business models and focus on the leading factors of this disruptive change.
Four key macro trends have been found to be the front leaders of the disruption – according to research performed by the Deloitte Center for Financial Services. Over the next 15 or so years, CRE executives should pay close attention to the following when positioning their companies to respond to the ever changing commercial real estate market.
Sharing goes beyond table manners and enters the office space market.
Individual entrepreneurs and small businesses are leading the shared office space movement, including the demand for flexible-term leasing, furnished space, and amenities. In turn, commercial real estate developers, owners and operators must start to design space to accommodate these demands, redevelop and reposition space as a result of excess capacity, and come up with innovative and dynamic leasing models.
Improving technology makes direct-to-consumer services more easily obtainable.
Information sharing, cognitive technologies, big data analytics, and artificial intelligence are becoming the norm across all industries and these trends are being seen in commercial real estate through improved access to market information and data. Due to this, the potential for transactions without brokers is increasing and begging the question of traditional brokerage services and leasing models. To balance the shift, companies must look to non-broker revenue sources and new service models that drive value for clients.
On-demand and same-day delivery blurs the line between retail and industrial space.
The retail and industrial markets are responding to consumer expectations for on-demand and same-day delivery services by utilizing 3-D printing, robotics, drone technology, and inventory optimization technology. This in turn reduces inventories and limits demand for large warehouse spaces. Gone will be the days of large distribution centers, instead commercial real estate executives operating in the retail and warehouse/industrial markets should focus on smaller, local distribution centers and flexible store formats that allow for maximizing space utilization.
Non-traditional employment experiences drives demand for office and mixed-use properties.
The millennial workforce is leading the charge in the evolution of the marketplace by way of where commercial real estate is located, how it’s designed and the way it’s used. In order for employers to win the talent war, they must locate office space in mixed-use, transit-oriented developments that incorporate amenities such as housing and recreational options. The live-work-play environment will be the differentiator of what attracts and retains the millennial worker, who will comprise 75% of the workforce by 2030.
In addition to keeping these four key macro trends in mind, commercial real estate leaders and decision makers should consider how construction and paid parking impact economic development.
Construction activity expected to remain strong amid growing costs.
Given 2015 was a banner year for construction activity, 2016 would be hard-pressed to follow suit given mounting costs and a lack of talent supply. Even with these contributors, 2016 should see stable-but-slow construction activity in several key sectors including education, industrial, office, and retail. The key factor behind the rising costs are due to the sharp rise in sheet-glass prices, which negatively impacts office and high-rise residential construction budgets. Coupled with rising costs is the challenge of finding skilled workers at higher labor costs. An industry-wide survey by the Associated General Contractors of America found that 86% of contractors have trouble filling key hourly craft positions and salaried professional jobs.
Paid parking benefits developers, businesses, and consumers.
Ample parking in urban and downtown areas can be hard to come by and businesses are usually the ones to hear consumer complaints. A solution to this can be found in a parking benefit district – a quasi-government organization, usually a public-private partnership with local business participation that has some authority over parking rules and revenues. These transportation benefit districts, downtown development authorities or business improvement districts enhance parking convenience and uses the revenues from paid parking to improve the commercial, residential, and retail environments in a variety of ways.
By utilizing technology, staying abreast of market trends and consumer activity, commercial real estate professionals can ride the tides of the ever-changing real estate landscape. Besides the major disruptors, all signs point to relatively clear skies ahead in 2016 for steady growth in key markets across the United States.
NAIOP, Development Magazine Spring 2016, Business Trends: Four Key CRE Disruptors
NAIOP.org: Construction Activity is Still Growing – It Just Costs More Now
Associated General Contractors of America, Nationwide Survey Finds 86 Percent of Contractors Have Difficulty Filling Key Craft and Salaried Jobs as Demand for Construction Increases
NAIOP, Development Magazine Spring 2016, Business Trends: Making Paid Parking Pay