2018 was big and booming for most of the commercial real estate industry. Investors were excited about U.S. commercial property markets, and the year kicked off with a four percent increase in year-over-year deal volume.
Economics worked in favor of CRE professionals this year, with a surge in gross domestic product growth, healthy job growth, and favorable regulatory and tax policies in play. But, will investors continue to deploy their capital in the year to come?
While many experts have noted that the market may be peaking now and becoming more conservative by 2020, development in 2019 will likely rely on factors beyond the economy. New business models, evolutions in technology and its applications, and shifting tenant expectations will play a significant role in commercial investment activity.
An annual investor survey conducted by professional services giant Deloitte revealed four important factors that will influence their CRE investment decisions over the next 12 months:
1.) A large proportion of respondents plan to increase their capital commitment to CRE, with the U.S., Germany and Canada leading the way.
2.) Nontraditional assets such as mixed-use properties and new business models such as properties with flexible leases and spaces are expected to attract an increased allocation of investment dollars.
3.) Many surveyed investors expect to prioritize their investments in existing and potential investee companies that respond rapidly to changes in business models and adapt a variety of technologies to make buildings future ready.
4.) Survey respondents see a significant impact from technology advancements on legacy properties in fewer than three years.
Capital reinvestment in the year to come may slow as economists predict, but it won’t disappear. Investors will simply be more strategic, considering technology advancements and community interconnectedness.
For example, multifamily, mixed-use and industrial transactions all had strong showings in 2018, and opportunities in these sectors will likely remain robust. There’s been a shift away from the traditional central business district office spaces, and a new interest in development that considers holistic integration into modern trends.
Key macroeconomic fundamentals, including population growth, domestic migration and strong employment growth, have driven interest in select secondary metros. Here, property appreciation increased more as investors looked for better risk-adjusted returns.
Plus, more millennials are following the paths set by previous generations and settling in suburban developments. But the new communities are becoming like cities themselves, with green space, services, living and retail all bundled together to emphasize the tenant and employee experience.
As in past years, technology is not to be ignored in 2019. Companies with new business models are becoming agents for change, retaining the core ideals of the real estate business, including key location selection, but shifting the way the physical space is used.
For example, co-working spaces use office opportunities to offer a functional and memorable business proposition to tenants. They create a vibrant ambiance, varied open-seating options, tenant amenities and networking opportunities, along with access to enhanced technologies. Instead of existing simply as a physical space, companies like these create a service hub, ripe for investment.
As 2018 draws to a close and 2019 holds a bit of uncertainty for investors, Intelica Commercial Real Estate is taking stock of the current business environment. We’re consistently digging into key investor preferences on capital allocations, use of technology, cyber risk management, talent acquisition and retention, and the role of property and financial tech in the commercial marketplace.
Reach out to Intelica CRE if you need actionable insights and strategic recommendations for ways to keep your commercial portfolio in a strong position, adapt to market trends, and respond to market demands. Our real estate professionals are here to help, this year and for years to come.