The Future of Commercial Real Estate: 12 Trends for 2020 and Beyond

February 2020

This white paper examines 12 key trends that are likely to shape the national commercial real estate markets in the coming years.

Future of commercial real estate trends for 2020 and beyond

Featured Summary

Technology is Reshaping Industrial Space

New companies that cater to improving the supply chain will not only change the way other companies acquire industrial space, they are also beginning to shape new markets as they themselves grow. As these new companies seek to revolutionize industrial space and continue to expand, we should expect to see increased demand for Class A industrial space in markets across the U.S

Life Sciences Industry Momentum Will Drive Demand for Specialized Real Estate

As the life sciences industry grows, so does the need for highly-specialized space to facilitate research and development and also production. Investors considering alternative assets such as life sciences properties for portfolio diversification may attain stronger yields than those offered by traditional office or industrial acquisitions.

Medical Retail is a Fast-Growing Market Segment

Medical service providers have been expanding rapidly into retail spaces including malls, shopping centers and urban storefronts. The primary driver of this trend is creating a convenient experience for the patient/consumer as retail developments tend to offer high visibility, ample parking and central locations near residential populations.

The Rise of Coworking has Contributed to a Decline in Traditional Small Office Leases

As coworking has grown more popular, the volume of transactions from tenants smaller than 10,000 square feet in the traditional direct office market has decreased. While the decline in smaller deal volume is undoubtedly a challenge for traditional asset owners, it may have reached an inflection point due to slowing growth in the coworking and flexible office space sector. One possible repercussion of this slowing activity is a rejuvenation of the direct-to-owner small lease market.

Faster Deliveries Blur the Lines of Industrial and Retail

Older, close-in industrial product near urban centers often commands rent premiums over functional space that is farther away. This presents opportunities for infill development and redevelopment at higher rents.

Multifamily Investors are Gravitating Toward Secondary Markets

Over the past several years, the share of U.S. multifamily investment into secondary markets has grown significantly, topping 65% each year since 2016. Higher costs of living in supply-constrained primary markets have led to migration of individuals and corporations into secondary markets. Transient renters-by-circumstance may have less incentive to stay in expensive markets now that quality employment opportunities can be found across the country.

Rising Construction Costs Correlate to Increase in Tenant Improvement Allowances

Over the past few years, the combination of a shortage of qualified skilled laborers and restrictive trade policy has dramatically increased the cost of new construction. While supply and demand fundamentals and robust new construction in most major markets have also influenced tenant improvement allowances, rapid growth in these allowances over the past decade remains highly correlated to escalations in construction costs.

Growth of Food and Beverage E-Commerce is Increasing Demand for Cold Storage

As e-commerce and online grocery sales accelerate, retailers and food distributors will need larger distribution hubs with enhanced cold storage functionality to scale up “last-mile delivery” capabilities for their customers. Large fulfillment centers are increasingly breaking ground as developers look for available warehouse facilities and land in proximity to ports and interstate highways, particularly in gateway markets.

Baby Boomers are Enhancing Demand for Multifamily Units

Many baby boomers are showing a preference for renting in urban areas as they enter retirement. Multifamily demand from baby boomers will continue for years, as seniors are one of the fastest growing demographic groups—the number of Americans aged 65 and older is projected to nearly double by 2060. Baby boomers represent a good target renter group for asset owners as they are less “rent burdened” than other tenant groups, given they have had more time to build wealth.

The Technology Sector is Driving Creativity in Office Design

Tech firms are targeting millennials by locating in central business districts and often eschewing traditional office towers for more collaborative, highly-amenitized space. Their typical high-growth mode dictates a need for flexible lease terms and scalability. The built environment, both in terms of carefully-selected locations and curated space, has become a company’s most potent recruitment and retention tool.

New Hotel Brands and Concepts are Emerging in a Competitive Market

The U.S. hospitality industry has seen robust growth as business and leisure travel increased and put upward pressure on room and occupancy rates. This competition is resulting in new concepts and brands designed to appeal to a variety of travelers. Going forward, it will be important for operators and owners of hotel properties to remain flexible and in touch with their consumers, to be able to quickly adapt to changing demands.

Office and Multifamily Development are Increasingly Intertwined

Office and multifamily asset types have evolved into a symbiotic relationship in which each has become at least semi-dependent on the other. Nationally, multifamily has been a top performer in this cycle. In cities where an urban core has been established and nurtured, developing new office space to cater to firms wishing to expand their presence in the city and leverage the nearby workforce is a trend likely to continue in 2020.

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