Newmark has released a white paper, Evaluating Popular Misconceptions in Commercial Real Estate, which explores common myths in the commercial real estate market. Entrenched ideas about real estate often sprout from a kernel of truth-a single instance or special circumstance-that has been broadly applied to thinking about the wider market.
As part of Newmark’s ongoing thought leadership series, this paper shows that many of these ideas do not accurately reflect today’s commercial real estate market. Giving cogent examples from markets across the country, the report cites six pervasive myths and the realities that contradict them:
• MYTH 1: Brick-and-mortar retail is being replaced by e-commerce
REALITY: Brick-and-mortar retail remains vital, but a transformation toward experiential retail is accelerating.
In-person sales still constitute 91 percent of the American retail market, but consumers are often looking for a shopping experience that differs from the transactional format of the past. Stores capable of offering a sensory experience-the ability to touch and explore new gadgets or receive personalized assistance to determine fit for clothing or shoes-provide something of value that can’t be found online. Growth in retail real estate has been weighted toward discounters and convenience stores, which require a different footprint than many available vacant spaces provide.
• MYTH 2: Office design is primarily about efficiency and cost control
REALITY: Office design is about creating productive workspaces and attracting/retaining talent.
The flight-to-quality that emerged after the recession saw companies reducing their footprints and upgrading their locations. The drift toward smaller spaces sparked a revolution in office design aimed at efficiency which has transformed into sincere consideration of improving the office experience for employees-as attracting and retaining talent has become vital in a tighter employment market. Open office concepts have adapted to balance collaborative areas with individual and shared spaces that are tailored to focused work, away from disruptions.
• MYTH 3: Foreign Investors have soured on U.S. commercial real estate
REALITY: Foreign investors are becoming more cautious but are still investing significantly in U.S. commercial real estate.
While investors still have capital to invest, opportunities are not as abundant since much of the inventory has already traded during this cycle. Many of the available properties are value-add opportunities or located in secondary or tertiary submarkets that are less comfortable and predictable for foreign investors. In addition, capital controls imposed on Chinese companies by their government to curb spending on U.S. assets has altered the profile of the typical investor. Gateway markets and the right opportunities are still attractive to long-term investors and those who view the U.S. market as more stable than their own.
• MYTH 4: Older, close-in industrial product is often vacant and obsolete
REALITY: Industrial properties close to major cities are highly desirable for last-mile distribution facilities.
In a market where consumers expect merchandise nearly on-demand, companies looking to decrease the distance between products and customers are often willing to accept the functional challenges of older buildings. Demand for close-in industrial space near urban centers can outstrip that for more modern product further out, presenting opportunities for infill development and redevelopment-perhaps even a proliferation of multi-story warehouses more common to land-constrained Asian markets. Creative delivery options, including third-party logistics providers, may expand the need for close-in fulfillment centers even for smaller retailers.
• MYTH 5: Suburban office locations are no longer desirable
REALITY: Suburban office space is highly desirable to some tenant types, particularly if the space is amenity-rich.
The needs of the modern tenant, seeking to attract a younger workforce, have shifted interest to urban centers rich with neighborhood amenities. With location a major factor in talent recruitment, suburban office parks so popular in earlier decades have suffered. Yet some of these complexes, particularly those situated near transportation hubs, have the potential to provide the walkability and activated environments so prized by younger employees. Mixed-use environments that can replicate the ease of access to transit, retail and dining options remain popular.
• MYTH 6: Millennials are the future of multihousing demand
REALITY: Seniors and boomers are increasingly drawn to apartment living.
With student debt and changing lifestyle preference delaying home purchases, millennials have been a major catalyst for apartment demand over the past decade. More transient to take advantage of economic opportunities, younger tenants still constitute the largest percentage of renters for multi-family units. Yet, over that same period, the baby boomer generation has increasingly been drawn to walkable, mixed-use communities as a welcome alternative to the expensive and physically taxing hassles of maintaining a home. Growth in the older adult population in coming years will only stimulate this interest, as more seniors look for vibrant neighborhoods with nearby amenities.
Newmark (“Newmark”), operated by Newmark Group, Inc. (“Newmark”), is one of the world’s leading commercial real estate advisory firms. Newmark has over 4,600 employees in over 120 offices. Together with London-based partner Knight Frank and independently-owned offices, Newmark’s 15,000 professionals operate from more than 400 offices in established and emerging property markets on six continents. With roots dating back to 1929, Newmark’s strong foundation makes it one of the most trusted names in commercial real estate. We offer a complete suite of services and products for both owners and occupiers across the entire commercial real estate industry.
Our investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting and, under trademarks and names like Berkeley Point and Newmark Capital Markets, government sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Our occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. We enhance these services and products through innovative real estate technology solutions and data analytics designed to enable our clients to increase their efficiency and profits by optimizing their real estate portfolio. We have relationships with many of the world’s largest commercial property owners, real estate developers and investors, as well as Fortune 500 and Forbes Global 2000 companies. For further information, visit www.ngkf.com.
Newmark, which is listed on the NASDAQ Global Select Market under the symbol “NMRK”, is a publicly traded subsidiary of BGC Partners, Inc. (“BGC”), a leading global brokerage company servicing the financial and real estate markets. BGC’s common stock trades on the NASDAQ Global Select Market under the ticker symbol “BGCP”. BGC also has an outstanding bond issuance of Senior Notes due June 15, 2042, which trade on the New York Stock Exchange under the symbol “BGCA”.
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