Socio-Cultural Trends Shaping Commercial Real Estate
Commercial real estate is currently undergoing a lot of change. Economic developments, social movements, and technological shifts are all helping to shape the CRE landscape. Read ahead to learn about just a few of the trends impacting the industry and implications for how they will affect demand for different types of commercial real estate properties.
Rise of the Millennials
What’s Happening
The market conditions each generation experiences while growing up play an integral role in shaping people’s habits, preferences, goals, and how they think about finances. With $1.4 trillion in annual buying power, Millennials in particular are driving some significant change in the commercial real estate industry. There are currently almost 80 million Millennials now earning paychecks, and their influence in the workplace, in communities, and in capital markets will only continue to grow.
Implications
In general, Millennials are delaying major life decisions, such as marriage, parenthood, and home ownership. As such, 2/3 of Millennials are now renters (by choice – not by necessity) and have increased demand for multifamily housing that offers resort-style amenities with the convenience of being in a walkable community. Similarly, their demand for job flexibility has resulted in a rise in coworking and alternative office spaces.
Urbanization
What’s Happening
Instead of a lengthy daily commute, an increasing number of workers would prefer instead to live, work, and play in the same area. More importantly, they want the lower cost of living offered by the suburbs, with the conveniences and amenities of city life, including walkability and easy access to retail, restaurants, and entertainment.
Implications
The industry is shifting toward high-density neighborhoods, which are then connected by efficient mass transit systems. Formerly neglected neighborhoods are turning into hip hot spots, with increased demand for multi-family housing, smaller-scale big-box retailers and grocery stores, highly-connected infrastructure, and more communal spaces.
E-commerce vs Brick-and-Mortar
What’s Happening
On one hand, people like the convenience of being able to purchase items online, but on the other hand, they still like being able to touch and feel the items they are buying.
Implications
Despite headlines that insinuate retail is dead, 2017 saw 4,000 more stores open than closed. Nonetheless, the landscape is changing and presenting new challenges. The true winners in this retail battle will be those companies that can embrace both e-commerce and brick-and-mortar, as they will be in the best position to meet changing consumer demands. In particular, buyers are looking for retailers to offer an engaging, memorable, interactive shopping experience.
The Sharing Economy
What’s Happening
The sharing economy is disrupting multiple industries, from Uber and Lyft ride share to Airbnb and HomeAway home share. And now it is impacting office space.
Implications
An increased demand for co-living, co-working, and community-driven spaces is reshaping how we think about commercial real estate, as spaces become more flexible and tenants fill more of a customer role. The concept of “space-as-a-service” is a benefit, though, as it enables property managers to maximize returns on spaces that may otherwise be unusable or difficult to rent out.
Globalization
What’s Happening
Foreign investors are flocking to properties in secondary and tertiary markets, confident that increased demand for properties will generate a large return in the coming years. For foreign investors, the US market is an appealing way to diversify their portfolios, due to steady job growth and a strengthening economy. This trend was strong in 2017 and does not show any signs of slowing in 2018.
Implications
Foreign investment is helping to expand growth beyond primary markets. Multifamily has long been the preferred property type, but as certain cities become overbuilt, investors are shifting to industrial properties, helping to create new jobs and increase demand for those cities.
Technology Disruption
What’s Happening
Digital disruption is impacting every aspect of our lives, including real estate. Technology is causing big change in the CRE industry, and many forward-thinking firms that adapt quickly are finding themselves with a competitive advantage.
Implications
Every property type is being affected by new technology that drives productivity, collaboration, efficiency, and convenience. Tenants have now come to expect technological integration where they live, where they work, and where they play. And smart building technology gives property managers and companies a way to differentiate themselves in an increasingly competitive environment.
Social Responsibility
What’s Happening
Brands and companies are feeling more and more pressure to engage in social responsibility and actively address social, cultural, and environmental issues.
Implications
For commercial real estate, these demands play out in the form of social impact investing, which refers to real estate investments that drive social change, such as mixed-income housing, community and educational facilities, and co-working spaces. They generate measurable social or environmental benefits, along with financial return.
This is just a brief overview of some top trends driving change in the commercial real estate industry. Other factors include (but aren’t limited to) political and economic stability, immigration and trade agreements, changing government policies and regulations, the widening wealth gap, availability of data, the impact of blockchain, and an aging population.
Download this free eBook to learn more about trends shaping the commercial real estate industry, reasons to consider CRE investing, and factors driving demand for different types of properties.
