With many investors, analysts and stakeholders worrying about the possible end of the bull market (see Miami slowdown), 2016 still promises a wealth of opportunity for savvy investors and developers. Among the most significant trends of the year to date:
The Stable Economy Favors Growth: The five year-long bull market in the United States gives impetus to the notion that commercial real estate (CRE) offers strong investment advantages – especially in markets where supply is limited and the book value of projects has been growing incrementally. In December, the Federal Reserve encouraged CRE investors with predictions of long-term stability in the markets and very limited inflation. Employment gains across the country also augur good things for CRE as demand for office (principally creative office) has grown apace.
Urbanization and The Millennial/Boomer Effect: An explosion of milennials into the workforce and their preference for inner city life has fueled expanded development for office, residential and retail in core markets across the country. Added to this trend, a stream of boomers leaving suburbia behind for “downsized” urban dwellings, has strengthened and made more competitive the growth of city neighborhoods that offer a range of amenities and transportation options. This demographic shift is predicted to continue into the next decade or more – and will reward investors and developers who can leverage demand with appealing and well-priced supply.
Ecommerce Shaping Retail Development: The growing impact of ecommerce on bricks and mortar stores will be felt even more strongly in 2016 and in the years ahead. Shifting shopper preferences and space pressures in urban core markets will lead to an expanding palette of mini-shops (City Target) and quick trip store formats that cater to office workers with limited time and micro-unit residences. At the same time, retailers will be investing ever more heavily in technology solutions that can compete with the convenience of ecommerce and experiential scenarios such as cocktail receptions, in-store fashion shows and pop up stores that make a shopping trip “fun and fierce.”
Increasing Foreign Investment in U.S. Real Estate: Despite some hiccups in the Chinese economy and the economic pressures felt by Europe because of the migrant crisis, foreign investment in U.S. real estate will remain strong. The passage of FIRPTA reform in December, 2015, has been a factor in expanding investment by foreign pension funds – including Canadian and Asian funds. The Association of Foreign Investors in Real Estate (AFIRE) reported recently that its members expect 2016 to be a growth year.
Core Market Appeal: Urban gateway markets (New York, Boston, Washington, D.C., Los Angeles, San Francisco and Seattle as examples) will continue to feel strong demand for office and residential space. This trend rests on demographics (see trend 2 above) and on limited options for development or redevelopment because of geographic boundaries and pre-existing density. Developers with expertise in adaptive re-use of properties in key urban locations will fare well and are seen to be active in these high in-demand locations.