The demographic and economic shifts have tipped the scales of balance in the world once again. As the recession is starting to settle and the unemployment rate is in decline, the commercial real estate (CRE) industry is starting to adjust to the changes. The technological expansion has forced CRE to reshape the industry and accommodate new demands, while the generation shift has pushed the industry to reevaluate their strategies and plans.
However, the world is still faced with uncertainties, as the political conflicts challenge the stability and the economic issues are increasing volatility. Nevertheless, CRE industry is increasingly reacting to changes and it’s finding new ways to adapt to disrupting trends. Here are a few global emerging trends in 2017 that affect commercial real estate industry.
Millennials are taking over the main demographic group, as the Baby Boomers are starting to retire. Both groups are large consumers of real estate, but Boomers prefer to stay in one place, while Millennials are often changing places due to the difference in lifestyle choices.
The CRE industry will most likely focus on area specific housing for older generations while providing them with opportunities for assisted living, medical and care facilities. On the other hand, there will be more popular shopping and entertainment destinations for Millennials – however, their buying power is lower because of the income stagnation. Furthermore, this may lead to an increase in renting over ownership for the millennial generation.
The need for urbanization
Urban areas provide job growth and more employment opportunities, as well as more places for people to meet and enjoy themselves. Urban areas have always attracted new businesses and residents alike and they will continue to do so. Urbanization attracts people because of the entertainment places, work opportunities, educational centers and dynamic cultural environments.
Furthermore, urban centers are the hub of technological expanse, which is especially important for younger generations, and they will continue to grow in that area. A good example of this is Nokia’s plan to build smart cities in Australia that will use IoT to connect information and marketing to make a city livelier. The need for urbanization will push suburban areas to become more urban-like, giving the opportunity for CRE industry to modernize suburbs.
The increase in the use of smart technologies and Internet of Things (IoT) is already reshaping the CRE industry and the way properties are being marketed and sold. Implementation of technologies in buildings, homes, and workspaces is experiencing an increase in popularity, as well as appreciation from tenants.
CRE owners will have to retrofit their existing properties with new technologies and design new ones based on this trend, in order to attract attention and increase value. Furthermore, this will present an opportunity for new property management services that will account for innovations.
The weakening middle class
The world is recovering from recession, but the ill effects are still present. Middle class is slowly starting to disappear as the income and wealth gap continues to increase, while buying power is diminishing. The costs of college tuitions and healthcare plans, which directly affect the middle class, have risen, forcing families to lose ground on expenses.
Furthermore, decreasing purchasing power affects where people can live. Multi-family residential areas and affordable housings are doing well alongside luxury development, while there are fewer opportunities in the middle. Moreover, the buying power divide will force a change from home ownership to renting. Inability for home or business ownership in communities can easily lead to increase in public turmoil.
Drop in oil prices
The price for oil has dropped from $110 to the lowest price in the past 13 years, costing only $27 in early 2016 per barrel in the U.S., but recovering to $43 in mid 2016. The price is still significantly low and it’s directly affecting the global economy, as well as CRE industry.
In the time span required for oil prices to go back to sustainable levels in the U.S. the property markets will experience growth. Reduce in oil prices will affect construction costs, as reduced operating costs contribute to higher demand for real estate.
So far, CRE industry is reacting well to global changes and uncertainties. It is difficult to predict how global emerging trends will affect CRE. However, the industry is slowly starting to adapt to these new trends and it is managing to find a stable ground.