From 2014 to 2019, significant changes in commercial real estate trends were present. The real estate market transformed over this five-year period in many meaningful ways. Some of the most important changes include the following:

Desired Markets

In 2014 and 2015, the commercial real estate market was focused on major metropolitan areas. CRE followed the jobs and massive developments erected in Houston, Austin, Dallas/Fort Worth, San Francisco and Denver. These markets ranked high for retail, office and single-family housing. However, in 2018 and 2019, investors flocked to secondary and tertiary markets to realize greater yields. Developers saw high prices and limited opportunities that served as barriers to entry in major metro areas and chose secondary markets that showed double-digit growth during the last several years. Suddenly, Hoboken and Jersey City became more coveted markets.

Confidence in the Market

In 2014, it was not long after the great real estate bubble in the United States popped. Lenders had greater trepidation about qualifying buyers and tightened their eligibility criteria. The industry corrected for the mistakes in the past and became more self-regulated. However, investors were also fearful of an event that could disrupt their investments, such as geopolitical risks or natural disasters. Millennials’ apprehension about home ownership and their delay to purchase a home into later adulthood continues to affect the real estate market. As the market approaches the year 2020, many experts are predicting a recession after 10 years of solid expansion, which affects investors’ decisions regarding risk.

Political Incentives

After 2016 with the Trump Administration’s focus on business, investment increased in several real estate markets, including boosts in the industrial market, growth in suburban office rents and a greater demand in the multifamily sector.

Additionally, the Opportunity Zones continue to influence investors to pour money into certain areas and industries. Real Capital Analytics report that more than $6 trillion in unrealized capital gains are up for grabs in addition to a significant tax breaks.

Office Space

At the beginning of this five-year period, the trend was to include larger spaces for offices since the limited cubicle models of the past were largely avoided in new construction. Then, the demand for coworking spaces in which people from different industries shared spaces increased as startups and small businesses experienced a surge. The pendulum then swung back in the other direction with tenants demanding privacy for private meetings and team suites. Additionally, some real estate experts expect the demand for traditional office space to decrease as people work from home and different locations and in alternative manners.

Retail

Although much attention is given to the stalling out of retail establishments and more companies, including grocery chains, focusing on online sales, many businesses are still choosing to have brick and mortar locations. Some have even used having this type of establishment as a marketing tool to differentiate from all the online retailers. Retail Centers are changing to become “Amazon Proof” by catering to quasi-office users like insurance and medical uses. These tenants are looking for higher profile space instead of traditional office buildings. They are willing to pay higher rent for street locations and good signage.

For more information, contact Arthur Nachman at Arthur.Nachman@lnf.com or call (703) 864-2900.