As we approach late 2019 we have seen several trends that are impacting the commercial real estate market. Although more trends may continue to emerge as time goes on, the following have proved some of the most influential. Keeping track of these trends will help you make better decisions regarding your future commercial real estate investments.
The habits of consumers reflect the fact that we’re living in a digital, on-demand age. Today, many people shop online instead of at a brick-and-mortar retailer. Although this may sound frightening, it doesn’t mean the end of traditional retail stores. Retailers, however, will need to take a more creative and flexible approach to the customer experience. They will have to develop a completely immersive experience to keep people returning again and again. Although brick-and-mortar stores aren’t going away entirely, people will begin expecting more unique spaces and experiences. The resulting business strategy for many traditional retailers is to employ an Omni-channel or Multi-channel plan to engage customers.
Impact of Millennials
Currently, millennials are one of the most driving forces in the commercial real estate industry. This generation takes a unique approach to shopping, dining, and working. Millennials have spawned trends such as co-working spaces and remote work, and commercial spaces have to adapt to meet their demands. The influence of millennials will only continue to grow, as this group is projected to make up 50% of the global workforce by 2020.
Millennial startups are also still popular. As many of them enter a phase of growth, companies will begin looking to expand into larger workspaces.
Smaller Retail Markets
Retail investors are starting to look past the markets in big cities to secondary and tertiary markets. Investing in these smaller metro areas helps retail investors increase their portfolio yields. The demand is mainly focused on already-existing properties since construction in many of these areas is limited. According to the Marcus & Millichap’s 2019 Retail North American Investment Focus, multi-tenant cap rates in primary markets averaged in the low-6 percent range over the last year, while the average tertiary metro first-year return was in the low-7 percent area.
The commercial real estate market tends to fluctuate, so investors need to stay on top of trends to be successful. Online shopping, millennial preferences, and smaller retail markets are some of today’s most impactful trends.