2015 is here and the real estate market is back! Or is it? The beginning of the year is always a good time for reflection and planning for what may lie ahead for retail, industrial, office and multifamily properties; lending; the economy; construction; investment; and development. Here are some thoughts on what 2015 could look like. My local lens is Charlotte N.C., but I would be interested in feedback from others areas of the country as well.
Certainly this list is not scientific or the result of past reflection on future time travel, so weigh in!
1. Have We Built or Contracted to Construct Too Much Multi-Family Housing for Market Demand?
Millennial and migrants to urban centers continue to drive demand for rental units. Aging Baby-Boomers want to downsize from single family homes. But how much is too much? Some commentators suggest that we have not reached the point of diminishing returns and the specter of unleased space yet. Others say the market is becoming saturated and worry about the return of distressed residential properties or abandoned graded lots. What should be the yardstick here? Have they been refined in the post-Recession age? What about concern for building equity as millennials grow older and demographics continue to shift? A couple of factors to consider (wherever you are):
A. What data has been culled from local considerations such as light rail transport, centers of business and learning, as well as traditional and new amenities; and
B. What is the threshold for new job creation and retention or advancement.
C. How will a potential apartment glut absorb into the market over time and how could it impact the socio-economic profile of the area?
2. Is the Industrial/Warehouse Market Tied to Retail Migration to E-Commerce/Distribution or a Natural Evolution of the Market?
Wow, is this ever a debatable topic? Some trends seem to show in many areas that the general market for industrial and warehouse properties is robust due to the increase in needs for product, while others seem to link the increase in demand to the flee from traditional retail centers and malls. Is the increase in e-commerce really about the receipt of boxed goods in the mail or by pickup instead of foot traffic at traditional retail centers? Or is it a directional response to distribution demand? Clearly there has been a trend towards more high end and efficient means of distributing product. And with the rebound of the economy the trend should grow as well. Perhaps the Industrial sector will continue to lead the market for demand for new leasable space.
Here’s an interesting article on this subject.
3. I Keep Hearing About Bricks and Mortar Being a Driver for the Retail RE Market; true or just educated guessing?
I get the Best Buy model. Same selection as e-commerce retailers, competitive pricing and instant gratification by in-store purchase. But what about other retailers? A number of big box and discount retailers (TARGET and Family Dollar to name one a piece) continue to flourish in their niche markets. However, does that trend apply to expansion or even retention of existing locations? Is the inclusion of smaller retailer amenities (coffee shops, restaurants, grocery and pharmacy) a boost or just a lifeline? “Neighborhood Centers” continue to bring vitality to suburban communities, while many of the big malls are challenged with too much square footage for too little rental income. Perhaps the Lifestyle Center is a concept in transition?
4. Is The Trend of Smaller More Efficient Office Spaces a Help or a Hindrance to the Growth of Demand for the Office Market?
It appears for most businesses that the age of the big enclosed office is dead. Most of us are learning to deal with 75 square feet and a consolidated work space rather than the expansive 140 square foot shelves and crown molding. Does this trend help or hurt the demand for new or up fitted office space? On one hand, smaller use drives the mid -range market, but on the other hand will it lend itself to new construction? In this area it appears that the trend is for increased growth in both areas. Is the solution to continue to adapt existing buildings to new interior upfits and construct new office to attract tenants that require smaller offices and more interior amenities? The rest of the World seems to be still ahead of us. We should adapt and compete.
5. What About the Lenders? Are they On board With Projects and Plans, or Stuck in 2009-2012 Mode?
Where are the lenders now: large, medium and small? Lending to secure and well-financed businesses seems to be on the uptick. But is it where developers want to be? The increase in small and mid-sized lender alternatives has created alternatives to groveling to the big banks for onerous terms. Where will the trend go though? Will it lead to more investor migration to aggressive smaller lenders and/or cause the large banks to get out of their REO malaise and be competitive?
So, what do you think?