There are numerous factors influencing today’s global economy, from the Federal Reserve and potential implications of “Brexit” to the ongoing conflict in the Middle East and the outcome of the U.S. Presidential race; all four will have an impact on commercial real estate. Despite the media coverage that these factors receive, there are three megatrends taking place that are expanding the universe of economic opportunity and changing the way professionals, business-owners and investors are thinking about the future.
These 3 trends are Globalization, Demographic Change, and Technology.
1. Globalization
Globalization is being driven by the access to information, services, and know-how and it is creating new opportunities for business and investment strategies relative to commercial real estate. The globalization of real estate is expanding investors’ appetites for new markets and asset types, resulting in larger pools of capital seeking yield.
2. Demographic Change
In the “old” days real estate was thought of in terms of addresses and buildings, but in today’s world, we are thinking about it in terms of people and their communities. As the world continues to age, retiring and elderly populations will drive urban consumption and housing growth. In contrast, younger populations (most notably Millennials) have a propensity for lifestyle preferences in a compact city center and are pioneering the societal shift to a sharing economy. Office mobility and collaborative workplace design are trends within the megatrend that will help shape the next iteration of buildings and spaces. For example, industrial is changing in tandem with population needs, office development is driven by co-working and the “creative-class”, and retail is changing as the overall shopping experience continues to evolve.
3. Technology
The effects of technology constitute one of the most important issues impacting real estate. It is driving businesses decision-making on where to locate, connectivity expectations are evolving and consumer behavior is increasing the role and significance of e-commerce. Additionally, the newest disruption is the impact of autonomous vehicles on commercial real estate. While it may not be the topic of a CEO’s keynote, transportation and parking are major factors in any commercial real estate transaction. Companies would tremendously benefit from reduction in transportation costs through labor savings; conversely, it would have a negative impact on employment. Moreover, office and multifamily properties would no longer need as much land devoted to parking, freeing up space for alternative uses.
In conclusion, the key isn’t to follow any one of these factors, but to take all of them into consideration. The good news is local market knowledge is still the key differentiator for successful commercial real estate investors. Keeping these trends in mind along with good local market intel will allow you to better position your portfolio for long-term success.
