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Experts discuss commercial forecast for 2019

In most any business, being the first to recognize trends is both a useful and fruitful skill,
and for commercial real estate, things are no different. Successfully doing so, however, is a story unto itself.

As technology grows, markets expand or contract, and the economy teeters, it takes more than one mind to parse through the tea leaves and look clearly towards the not-so-distant future.

We turned to the experts to hear their takes on three of the top real estate trends in offices, retail and more.

Technology takes front seat
Today, profound advancements in technology turning industries on their head is par for the course, and according to experts, real estate is far from immune to that trend.

While the industry has been somewhat slow to adopt technology compared to other fields, the moment for tech sectors like PropTech has arrived. According to tech incubator, venture capital, and advisory firm MetaProp, investments in proptech have exploded in recent years with an unprecedented $12.6 billion in funding siphoning into the field in 2017. That’s an increase from $4.2 billion in 2016.

According to an annual emerging trends study for 2019 by consultancy firm, Deloitte, among the top new technologies that investors say they would like commercial real estate companies to bolster are softwares to increase both efficiency and predictive analytics. A respective 84 percent and 83 percent said so in the most recent study.

Those technologies go hand-in-hand with a burgeoning demand for data about tenant preferences, markets, and energy usage, the drive towards which was encapsulated most clearly by cutting-edge developments like Hudson Yards which will deploy thousands of sensors to track the movement of its residents in an effort to optimize usage.

For evidence of data’s efficacy, some of the earliest adopters of big data like Zillow, Trulia, and Redfin, have already shown many brokerages the power and demand of a technological approach to real estate.

Earlier this year, Newmark Knight Frank, CEO, Barry Gosin, whose company develops technology in-house, had his say on the future industry adoption at a real estate conference.

“Every day is a conversation about technology,” he said. “If you’re not excited about technology, you should be frightened about technology.”

 

Relocation vs renew
For veterans in the real estate industry, surprises are increasingly harder to come by, yet Jeffrey Peck, vice chairman of Savills Studley, who has worked in real estate for almost 20 years, said one recent trend has come as a surprise.

“The major trend that I’m seeing now is that tenants are looking at relocation being more cost effective than renewals,” said Peck. “This is the first time in my career that I’ve seen that it’s less expensive to relocate than renew.”

Behind the trend, according to Peck, is the continued growth in tenant improvement, T.I. allowances, that have enticed companies to jump ship and take advantage of a wave of concessions offered up by office landlords looking to keep vacancy rates down.

Other factors behind rising T.I., allowances include rising cost of construction as well as, changing tenant needs. Peck explained that amidst changing office dynamics, tenants typically don’t require the same level of space as they once did – this same trend has also contributed to the meteoric rise of co-working purveyors like WeWork.

According to a June report by JLL, an increase in T.I’s, are far from an isolated event, in fact, levels have exploded across the country in cities like Chicago, Los Angeles, Boston and San Francisco where office prices have also risen.

With allowances showing no signs that they plan to subside – a pattern mirrored by rising concessions in the housing market – relocations may continue to trend upward according to Peck.

 

Amping up amenities
Though amenities are often more the expertise of residential builders – spas, fitness centers, playrooms and the like – according to Managing Partner of MetaProp, Zach Aarons, offices are increasingly adopting the perks one usually finds at home.

“The amenity you used to see in a fancy condo you see is in an office building,” he said.

Principal and COO of Stellar Management, Adam Roman, said that this trend is one that observers of commercial real estate might expect to expand, though with a slight twist.

“On the office side, one of the interesting things we saw continuing to evolve in 2018 that will continue to gain traction is this concept of having more common area amenities, and outdoor space, and public spaces within office buildings,” he said.

Unlike previous trends in office amenities which tended to vary from office to office, Roman said that buildings are increasingly including amenities as a communal aspect to their buildings. Behind this drive is, again, an increasingly changing demand from tenants.

“Office tenants have become more efficient with their space,” he said. “Part of the give and take is that some of those common area amenity uses that otherwise would have been inside their space are common areas in the building.”

Though a more collaborative workplace may be the norm for newer offices, the trend, Roman explained, will likely also work out favorably for landlords.

“I think from a landlord perspective, you’re able to get more tenants in the building and drive a higher s/f rent,” he said.

Looks like kegs of office cold brew could be here to stay.

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