The old belief is that real estate is the most stable and profitable of all investments. When looking to the future of commercial real estate investing there are three things people should evaluate to make those real estate investments pay off. Investors need to consider how globalization, demographic changes, and technology might affect an investment, not just now, but in the future.
Some investments in commercial real estate will see minimal changes regarding globalization, changes in demographics, and technology, but many investments will be impacted by at least one of the three items, and some may be impacted by all three.
Globalization and Commercial Real Estate
By nearly every way it can be evaluated, commercial real estate investing is as profitable in 2016 as it ever has been before. As a matter of fact, it is possible that by the end of the year, there will have been more than one trillion dollars invested in commercial real estate which is an increase of up to 6% for the year.
Globalization affects the real estate market by allowing investors to access new markets and new asset types, which means there is more capital that can be moved. Industrial investments are also a part of the commercial real estate market in ways that it never has been before. The internet, the speed of air travel, and other factors that allow business to be conducted from thousands of miles away, or to move people thousands of miles in a matter of hours has increased the potential for industrial deals.
What hasn’t changed in industrial markets is a knowledge of local events. The difference in 2016 and beyond, compared to what was available in the past, is access to local knowledge is easier to attain. Those investors that are able to attain solid local market knowledge are more likely to find success as they participate in global commercial real estate investing.
Changes in Demographics
Demographics are changing, and it is important for commercial real estate investors to understand this fact. It isn’t that there are more women, more men, more people of a certain color that are changing, it is that Baby Boomers and those right behind them are aging. There are a greater number of older people than ever before, and they need to have their needs met. This can be challenging, and it can present opportunities to the savvy investor.
While a large portion of suburbanites are aging and requiring different needs, younger people are also aging into new needs that the commercial real estate market has not seen in the past. This is combined with a world-wide growth in middle classes and their desire for retail experiences, as well as an increased need in improved housing, education, and health services.
Unlike the Baby Boomers, millennials have a greater desire to live in city centers. Just like the Baby Boomers, this younger generation is interested in working close to where they live, as well as finding entertainment and more housing options closer to city centers in urban areas.
Technological Changes and Adjustments
For the past thirty or forty years, technology has created changes in how a workforce for retail and other business experiences have interacted with their environment. That has not changed, other than to become more important in the 21st Century. Businesses will seek to find locations not only close to the technology hubs of the country and the world, but they will also seek to find locations close to the education hubs of the world. It is no coincidence that Boston, Massachusetts is becoming an important play in medical technology with many important players in medicine, and education in the area. The same can be said for Pittsburgh, Pennsylvania, which serves as home to Carnegie Mellon University which is important in tech innovations. Industrial and commercial developers look for real estate opportunities near these sites, as well as Silicon Valley, Austin, Texas, and other more traditional tech-rich locations.
Technology is also proving to be impactful as it affects the purchasing behavior of consumers. E-commerce is an important player in sales, so the need for the kinds of stores in retail spaces will be changing. The traditional record or CD store is rare with the increased number of consumers who download all of their music. Other consumer choices will likewise affect how investors view sites to invest in.
Assuming self-driving cars become a viable option in the future, retailers will not need to set aside as much space for parking as they have in the past. Self-driving cars are more efficient at parking and can squeeze more vehicles into less space safely.
It is important that investors look at the big picture for all three of these impactors on retail investment. Taking globalization, changing demographics, and changes in technology can make or break an investment. It is important to look to the future to determine how a site will likely react to changes in each of these three important considerations.