Want to know a disconnect between Commercial office developers and job creation? Developers are building bigger floorplates while job creation is coming from small companies.
When I got into the business, office floorplates in Metro Phoenix averaged 10-15,000/sf. Today, new construction is looking at floorplates with a minimum of 25,000/sf all the way to 40,000/sf for multi-tenant office buildings.
Below is the annual top 10 trends affecting the commercial real estate industry from ULI. I normally wait and do a deep dive on the CRE top 10 list, but I thought this job creation stat was too valuable to not send now.
Here are a couple others to watch. You can read about them in detail below.
–18 hour cities (like Phoenix) are in vogue for investors.
–Parking is on the front of everyone’s mind. This will be something I talk about in 2016. There’s a lot happening with technology and in the next 10-15 years what we do with building parking lots will become the most important topic.
I’ve highlighted some of the key points for your quick review. Staying on the inside of trends, that’s what we do for you and all of our clients. Sure tech companies are trying to disrupt our business. See trend #10 below. But we’re bringing back the human touch. Love it.
P.S.- The Bachelor is back with our 3rd and final clip. In this preview, even the best decision makers need the opinion of others. The Bachelor needs help narrowing down his building choices. To see the final decision, watch the full video on our website by clicking here.
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ULI Forecast: Small Business Job Growth is Altering Commercial Real Estate Industry
Job growth at small firms employing fewer than 50 people is outpacing that of larger firms by nearly five to one.
SAN FRANCISCO — The commercial real estate industry is increasingly focused on the needs of small firms employing fewer than 50 people, where job growth is outpacing larger firms by nearly five to one, according to Emerging Trends in Real Estate 2016, an annual real estate report co-published by PricewaterhouseCoopers (PwC US) and the Urban Land Institute (ULI). The report was released during ULI’s fall conference held recently in San Francisco.
“Advancements in technology that are affecting how people live, work, learn, socialize, and get around are reflected in the rising popularity of cities other than the largest coastal markets as magnets for investment,” says Patrick Phillips, CEO of ULI. “More and more of these cities are gaining a competitive edge by positioning themselves as vibrant, more affordable places to live and work, with amenities that appeal to different generations.”
Below are 10 trends to watch, according to the report:
1. 18-Hour Cities 2.0
The real estate industry has growing confidence in the potential investment returns in “18-hour markets,” which are mid-sized cities whose downtown areas are active in the morning, afternoon and evening, but not late at night. The growth in investor sentiment is evident in the 2016 top 10 rankings — with the exception of San Francisco and Los Angeles, the balance of the markets are 18-hour gateway cities.
2. Next Stop: The Suburbs
As cost of living and housing prices have risen in the core gateway markets, it’s apparent that a fresh look at suburban opportunities is gaining investor favor. In the top 40 metro areas, 84 percent of all jobs are outside the city core — and that’s the basis for optimism for the suburban future.
3. Offices: Barometer of Change
The office sector has been benefiting from the strengthening employment numbers and a rethinking of how employees can maximize their productivity through improved workspaces that are seen as more open and that promote collaboration. Some surveyed respondents see the redesign as a way to accommodate an alteration in work style itself, while others view it as a way to attract and keep desired talent.
4. A Housing Option for Everyone
Economic and demographic factors are influencing the housing market as it deals with providing the type of housing desired by the peak of the baby boom generation and aging Millennials and finding a way to provide affordable housing to support a vibrant workforce. Developing improved housing options for everyone is passing from the realm of “nice to do” to “must do” — and that will be shaping the housing trends going forward.
5. Parking for Change
Miles traveled by car for people 34 years old or younger are down 23 percent (United States Department of Transportation — Federal Highway Administration), while the percentage of high school seniors with driver’s licenses declined from 85 percent to 73 percent between 1996 and 2010, according to the American Automobile Association. The urbanization trend and gen-Y preferences already suggest that existing parking represents a suboptimal use in land and in both 24- and 18-hour cities, that’s creating change.
6. Infrastructure: Network It! Brand It!
In light of urban population growth, cities are looking to urgently prioritize repair and maintenance, and at the same time tackle critical needs in areas such as water supply and distribution, public education, aviation, vehicle and pedestrian traffic and rail safety. This is leading to creative solutions such as high-frequency bus networks and green infrastructure. As the need to do more with less becomes more acute, innovative solutions to infrastructure needs is likely to mark the latter half of this decade and beyond.
7. Food is Getting Bigger and Closer
There are many cities where neighborhood land is cheap or older buildings sit idle, and where median incomes are low and the need for fresh food is high. What is trending is the new vision that has urban land as the most precious and flexible of resources. Just as the reinvention of the suburbs is an emerging story for the decade ahead, so is the creative adaptation of inner city uses.
8. Consolidation Breeds Specialization
The evolutionary trends in development, equity investment and lending are showing that “small can be powerful.” Developers may find it difficult to access sufficient capital unless they have scale, but this means fitting the quality demands of conservative lenders. That requires finding niche lenders and investors willing to fund the smaller projects; and small developers with their lenders may be accessing the most innovative parts of the business. Firms may find themselves in the middle and will need to choose which side — smaller or larger — they wish to be on.
9. We Raised the Capital; Now, What Do We Do With It?
New capital will be invested in: additional markets (capital is expected to flow more freely in 18-hour cities), alternative assets (what constitutes real estate will continue expanding), old is new again (older space is being embraced and it’s making the market consider a wider range of potential investments), and alternative property types (medical office and senior housing may see a benefit from changing demographics — and data centers and lab space may be in demand due to technical changes).
10. Return of the Human Touch
The industry is trending toward more intensive active management. Risk management of hacking issues is of critical concern — and attention to cyber security will penetrate more deeply into the real estate business. Attention to individual decision-making is needed as much as ever.