CORFAC News

The effects of policy, new generations entering the workforce and people’s changing preferences regarding retail experiences are just a few of the factors that are reshaping commercial real estate. CORFAC International firms recently identified several emerging trends that indicate where the industry is headed next. 

1. Changing Office Leases (Traditional Leases vs. License Agreements) 
The reason long-term leases exist is because lenders need assurance of payment, but that continues to shift as businesses explore creative office space options, including co-working spaces. 

“Co-working spaces are becoming more abundant, but traditional offices are still needed. The office space footprint is changing—fewer private offices and more open, modern collaborative environments. Less office space per employee will continue as technology, flex scheduling and work outside of the office increases,” said Paul Tesdal, senior vice president, Podolsky Circle/CORFAC International in Chicago. 

“While I don’t see the WeWork’s of the world becoming the new landlords en masse, I do see a continued and healthy trend in this direction, especially as entrepreneurialism becomes more popular. Companies can mitigate vacancy costs while ramping up,” added Hayim Mizrachi, CCIM, president, MDL Properties/CORFAC International in Las Vegas. 

2. The E-commerce versus Brick-and-Mortar Battle Continues
This battle rages because people continue to make more purchases online; yet people still want to be able to touch and feel many products they are buying. 
“The firms that embrace both e-commerce and brick and mortar will win. Brick and mortar footprints are getting smaller and industrial footprints for e-commerce distribution facilities are getting larger,” said Sim F. Doughtie, CCIM, MCR, SIOR, SLCR, president, King Industrial Realty/CORFAC International in Atlanta. 

“Firms like Home Depot are setting up omni-channel systems where they ship pallets to their retail stores, they ship online sales from purchasers to individual homes and they ship online sales to retail stores where customers can pick up their orders when it is convenient,” he added.

Tesdal agrees. “E-commerce is here to stay…I don’t think we will ever get away from brick and mortar, but it may not be the same.”

3. Immigration and Trade Agreements 
Anticipated changes to immigration policy in the U.S. and trade agreements are impacting the workforce worldwide and, as a result, commercial real estate demands. 

“Limiting H1B visas forces companies to hire home-grown talent. Perhaps this will lead to more outsourcing, reducing demand for office space. Or, more balanced trade agreements may allow foreign capital to flow toward more stable U.S. markets,” said Cole Sweatt, vice president, TRI Commercial/CORFAC International in San Francisco.

“In Mexico, Chinese and other Asian companies are looking to take the place that U.S. companies are not willing or are afraid to take, so in the short term there will be low activity, but after a few months business should be normal again,” said Miguel Cavazos, CCIM, SIOR, chief managing partner, Citius Capital/CORFAC International in Monterrey, Mexico.

4. Retail Space Is Reimagined
In retail, three big trends continue: smaller footprints, fewer stores and flexibility. “Leases are shorter than in the past with the exception of flagship stores. For instance, Starbucks is rumored to be planning a 35,000 square-foot roastery concept along Michigan Avenue in Chicago,” said Tesdal.

“We are seeing a reimagining of the uses of large retail spaces with gyms, escape rooms and even some call center and back-office spaces,” explained Mizrachi. “Imagine marrying augmented reality with escape rooms. Throw in a coffee shop, connect all of these locations on a social platform, and you have a national franchise that leverages the obsolescence of cheap rent from vacated grocery stores.” 

5. The Millennial Effect on Offices 

Today’s office workers seek more experiences in the workplace, which requires open space, team rooms and the space to bring in breakfast and lunch. While much of this falls on employers to get creative, landlords can help make the experience count.

“Landlords should offer amenities like charging stations, food vendors, proximity to public transportation and energy efficient/environmentally conscious buildings,” said Sweatt.

6. Construction Costs Rising 
When construction costs increase, so do leases and sales prices. “In the industrial sector we see an increase of valuations of existing buildings, because as construction costs, land costs and soft costs rise buyers are willing to pay more for existing product,” said Scott Hensley, CCIM, SIOR, principal, Piedmont Properties/CORFAC International in Charlotte, NC. “One of the three valuation methods used in appraising properties has always been replacement cost, so as the cost to replace a property increases, the value of the existing facilities increases.” 

7. Warehouse and Industrial Space Expands
E-commerce distribution warehouses are getting larger and smaller at the same time. “Initially, the favored size for an e-commerce warehouse was 800,000-1.2 million square feet, not very close to population centers, and they grew to be 1.5 to 1.8 million square feet,” explained Doughtie. “As customers began to demand quicker deliveries, e-commerce firms started occupying smaller facilities of 200,000-500,000 square feet closer to population centers where items could be shipped within hours.” 

Article originally appeared on GlobeSt.com, May 2017.