5 Trending Topics Impacting Commercial Real Estate
- Panelists at the recent NYU Women in Real Estate symposium noted that while U.S. economic growth has slowed, the real estate market is still performing well with solid fundamentals.
- Industrial is one sector that is set to expand significantly as consumer preferences for e-commerce have resulted in robust demand for warehouse space.
- Multifamily owners are finding that the top amenity among residents is flexible community space.
The current real estate cycle, hot amenities and co-working were among the key topics panelists discussed at the recent NYU School of Professional Studies’ Third National Symposium of Women in Real Estate held in Manhattan. Women serving in senior-level roles at real estate firms gathered to discuss their outlooks for the market as well as the key trends facing the industry. Below are five key takeaways from the event.
Despite Signs of Slowing, the Economy Remains Healthy
While there are concerns about global GDP growth and the political environment, the U.S. economy and real estate market are still experiencing steady growth, several panelists noted. Accommodative monetary policy and a low-interest rate environment bode well for the U.S. real estate market, which is seeing strong market fundamentals, capital availability and investor interest.
“The U.S. real estate market continues to be extremely attractive relative to other opportunities. There are pockets of concern, but I think generally we feel very good about the state of the economy and also as a real estate investor, particularly in Europe and the U.S,” noted Candice King of WeWork.
Industrial Sector Has Strong Growth Potential
As more customers shift their consumption habits from brick-and-mortar stores to online, industrial is reaping the benefits of increased demand for warehouse and last-mile distribution space.
“The portion of consumption that used to run through retail real estate channels now runs through industrial,” explained Katie Keenan of Blackstone. She added that the places where industrial properties are most valuable, which are urban, in-fill locations, are also where it’s the least economical to build the asset. This dynamic of robust demand and limited supply creates positive fundamentals for the sector.
The pace of e-commerce growth has also been exponential, added Neha Santiago of Goldman Sachs. She referenced that the penetration of e-commerce as a share of total retail sales from 2008 to 2016 went from 4% to about 8%. From 2016 to today, the increase jumped from 8% to 17%.
Co-Working Still Attractive Despite Recent Challenges
In New York City alone, there are more than 15 billion square feet of co-working space, totaling 3.5% to 4% of total inventory. While major co-working player WeWork has recently faced well-publicized challenges, office owners and operators still see the value in having co-working space in their properties, noted Kinsey Sale of J.P Morgan.
She added that keeping co-working tenants at 25% to 30% of the total building space is a good strategy to manage risk. These tenants typically pay above-market rents, but it’s important to have protections in place in case the deal falls through. Security provisions include having landlords require a line of credit for one to two years of rent to cover expenses such as tenant improvements.
Having co-working tenants can also help attract other companies to the property who don’t want to lease as much space right away, but like having the option to expand in the future, Sale said.
Top Amenities Are Focused on Community
Contrary to popular belief, having amenities like community and event space with programming are proving to be most important to today’s residents, panelists noted.
“I think community is really important and making sure that the spaces that you do have in your building are flexible,” said Lesley Lisser of Invesco. These spaces can be used for events, co-working, or private meetings.
Multifamily properties can also host events like flea markets or farmers market, which help bring residents of different ages together to get to know each other.
Panelists agreed that no matter the age range, most residents care more about having access to community spaces that they can use how they want rather than the latest shiny amenity.
Technology Adoption is Crucial for Owner-Operators
How technology is changing the way the industry operates was one of the other hot topics. Technology can help real estate owners do their jobs better in two key ways: helping them understand how their properties are performing quickly and accurately, and identifying what technology features tenants are demanding, noted Melissa Pianco of Blackstone.
She added that while implementing smart home technology is becoming more popular, especially in multifamily, owners need to ensure the return on investment makes sense.
Lisser agreed, noting that adopting technology like smart metering and partnering with the local utility or municipality programs at her buildings has seen a payback of under a year by helping to reduce operating costs.
Having technology software to help property managers work more efficiently is also essential, Sale pointed out.
“We want to make their lives easier when they’re dealing with a lot of paperwork, marketing, customer relations, so they can spend more of their time focusing on things that are going to impact the quality of the experience for residents as well as impact the bottom line of the asset,” Sale concluded.
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