Looking ahead to 2019 – six predictions for real estate in the new year part two
The real estate industry is primed for another solid year. In part one of my forecast series, I discussed three predictions for 2019 including growing investment opportunities in urban markets, the technology takeover, and the need to strike a balance between e-commerce and brick-and-mortar stores. Now, let’s focus on the fate of the commercial market by taking a closer look at where we’ve been and where we’re headed.
4. Measuring progress in 20-year spans
Twenty years ago, before the onset of big-box retail, industrial spaces were king. 2019 will be a return to form with these types of spaces. Industrial parks near rail lines, airports, highways are booming right now. Why? Because the way people have shopped has changed to be truly omnichannel, and it’s triggered an effect on how goods are warehoused, stored, and delivered. These industrial buildings are now increasingly becoming distribution and fulfillment centers and there is a frenzy to build these industrial spaces throughout the country.
The office sector is also comparing itself to product from 20 years ago. Back then, office buildings were huge, with hundreds or thousands of people sitting at a desk from 9 to 5. These Class A buildings, however, are now passé?. Today, the office sector is now dominated by a temporary workspace, as a typical workday is more liquid. An employee will find a space like WeWork and can pay by the hour and still experience all the amenities of a typical office. Companies are no longer tied to certain offices or 10-year leases. And office owners are moving away from having one large office complex with multiple tenants. Now, they want single-tenant buildings, like the new Comcast headquarters.
5. Filling up big-box spaces
Developers and property owners are partnering up with non-traditional retail users in order to boost foot traffic and revive shopping centers. In 2018, U.S. store closings totaled more than 4,100, more than double the 2,000 openings. In many cases, to fill the vacancies, non-traditional retail users such as medical offices, fitness centers, entertainment uses, sports training facilities, hotels, and co-working office spaces have moved in. These users are in high demand and will likely not face the same hurdles as traditional retailers. Shopping centers and big-box spaces have the fundamentals that these users need to be successful – good lighting, ample parking, convenient locations, and easy access.
In addition to these non-traditional retailers, companies that have a strong online presence will be looking to put down roots and take over big-box spaces. These retailers will use vacancies to build fulfillment centers and establish a larger physical footprint with consumers. With that being said, developers and property owners can rest assured that shopping centers are not going away anytime soon – they may just be headed in a new direction.
6. Appealing to younger generations
Rather than collecting material items, millennials and Gen Zs–those born in 1995 or later–are looking for experiences. In addition, aging baby boomers are downsizing and spending more time dining out, and more money on entertainment and travel. To appeal to these shifting consumer demands, retail centers will need to be become more well-rounded and aim to create a meaningful experience for shoppers. A few examples are Restoration Hardware introducing fine dining restaurants to select locations or Urban Outfitters purchasing the Vetri restaurant group.
Mixed-use spaces are especially great because many different tenants can occupy the spaces. One space can be dedicated just for clothing while the other acts as a restaurant or movie theater. Younger generations value convenience, and having multiple retailers serving different purposes is very convenient. Savvy retailers and owners of real estate that buy into this lifestyle trend will be successful in attracting millennials and Gen Zs over the next few years.
Overall, I believe that the commercial real estate industry will continue to grow in the new year. Those businesses that can adapt on the fly and are paying attention to the market will thrive.
Check out our Here + Now Video where Jim Savard offers up three more real estate trends we can expect to see in 2019. Watch for Jim’s take on industrial’s comeback, the uses that are filling big-box spaces, and how the industry can best appeal to younger generations.