The 10 Factors Driving Commercial Real Estate Growth

So far, 2015 has been a strong year for commercial real estate. According to data released by Colliers, total sales volume topped $258 billion from January to June – a 38% increase over the same period in 2014. And it’s not just sales figures that are growing – development is up as well. The office sector is currently on track to see a total of 37.7 million square feet delivered in 2015, with another 49 million in the pipeline for next year. For industrial properties, those figures are estimated to be 87.4 million and 73.3 million, respectively, according to the CCIM Institute.

But what exactly is fueling this unbridled current growth? Here are a few of the biggest factors that are affecting commercial real estate in 2015:

Shifting Demographics – One of the most powerful factors affecting real estate markets – both residential and commercial – this year is an overall shift in demographics. With the growing number of Millennials entering the workforce, the preferences of this distinctive demographic will play a vital role in the direction of real estate for many years to come.

Focus on Urban Properties – Consumer preferences for urban settings have increased greatly in recent years, especially among Millennials. Rather than face a lengthy daily commute, younger members of the workforce are choosing to live, work, and play all in the same area. This trend has reinvented urban communities as the hottest places for companies to attract well-qualified tech-savvy workers.

Shrinking Office Sizes – Office sizes are shrinking as companies move away from individual offices and cubicles in favor of a more social work settings. As a result, many property managers and landlords are finding themselves leasing to a larger number of tenants, each occupying less space than the average in years past.

Continued Economic Recovery – GDP growth has had a big effect on business expansion this year, especially in the industrial real estate market. This has resulted in an increased number of jobs and higher wages. Combined with lower oil prices, many consumers are noticing a significant increase in disposable income which is likely to continue fueling economic growth heading into 2016.

Expected Interest Rate Increases – Although interest rates have continued to remain near historical lows, the threat of an inevitable rise is motivating investors to purchase properties now before the cost of capital increases and causes some prospective investments to be less attractive or potentially unfeasible.

International Investments –
While the United States is seeing strong growth this year, many countries around the world aren’t so lucky. Thanks to economic insecurity in a number of different regions, the US has solidified itself as a preferred destination for international capital investments from places like Europe and Asia.

Innovations in Real Estate Tech – Between an increase in venture capital and the implementation of crowdsourced funding in the field of RE tech, the commercial real estate market is actively adopting new technologies that are streamlining both transaction and management processes, and having a positive effect on overall returns.

Greater Access to Market Data – In the past, access to commercial real estate leasing data was very limited. Today, user-powered platforms like CompStak are making it simple for landlords and brokers to access a variety of data and set more accurate rates for their properties based on recent leases in their markets.

Improved Development Management – When it comes to commercial development, platforms like Honest Buildings have helped streamline and improve the process by allowing developers to more effectively manage their building costs and take better control over their projects from start to finish. In many cases, this means reducing the overall time needed to complete new construction.

Tenant Tech Needs – One of the most widespread issues affecting the commercial real estate market is the evolving tech demands of modern tenants. The need for reliable, high-speed connectivity is no longer limited to financial services and technology firms, and the property owners who are willing to take the time to understand and adapt to the tech needs of their tenants are already seeing the best results.

Although a diverse range of factors – both positive and negative – are affecting the commercial real estate industry this year, the three most commonly reoccurring trends are the shifts in prominent demographics, the improving US economy, and the continued implementation of new technologies. As we go forward throughout the remainder of the year and into 2016, we can expect to see the preferences of Millennials and Baby Boomers shaping all areas of real estate, economic expansion driving business growth and real estate investments, and the development of new technologies continuing to reinvent the way in which commercial properties are purchased, managed, and utilized.

 

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