Friday, March 15th, 2019 March15th2019

Sell for More News: Commercial real estate trends to follow in 2019

Published on March 15th, 2019

Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.

(Part 1 of 3)

Opportunity Zone Craze Continues

Wall Street has a new product to sell called Opportunity Zone Funds.  And they’re going to push them hard to every seller who wants to shelter some of their capital gains.

As funds await finalized guidance from the Department of the Treasury and the IRS, the hunt is on for assets in these designated areas that present upside potential.

While the program was created through the passing of the Tax Cuts and Jobs Act last year to drive economic development in underserved communities in exchange for a hefty tax break, research reveals many of the census tracts classified as opportunity zones have already attracted a substantial amount of investment prior to the launch of the new federal program.  Expect these funds to target the areas already experiencing a surge in development activity.

I wouldn’t invest in these funds myself. I also think it’s foolish to buy a property just because it’s located in an opportunity zone. That said, if you find a deal you really like that happens to be in an opportunity zone…maybe a fund will overpay you for it when it’s time to sell.

Industrial Boom Continues Thanks To E-Commerce

Industrial real estate demand soared to new heights in 2018. We expect more of the same in 2019.

There’s a massive amount of demand for logistics properties of all types. Obviously the Class-A big bulk warehouses are what get most of the attention, but the demand is very broad based and extending all the way down to properties in smaller markets.

Net absorption from e-commerce growth is expected to drive vacancy levels down to 4.3%, a historic low.

Demand will be especially strong for infill sites close to major population centers.  While the rising costs of land and construction could be viewed as emerging market headwinds, the upside of industrial development is still strong.  And rents are still going up.  And there are legitimate fears that new supply will not keep pace with robust demand.

Technology is transforming the urban fabric

The prolonged post-recession building boom has yielded a noticeable increase in a new type of technologically advanced building that is outperforming older buildings for the corporate tenant. These new buildings set a higher standard for what smart, tech-enabled design can do to improve the occupant experience and enable greater productivity.

Occupants now have the expectation that office buildings will provide a level of service that is more akin to their tech-enabled personal lifestyle. Buildings are incorporating systems to support a mobile workstyle.  Also, smartphone apps and sensors will adjust lights, temperature and even restock kitchen and restroom supplies on demand.

Google’s Sidewalk Labs is proposing a project on Toronto’s Waterfront that envisions an entire complex built “from the internet up.” Among other things, it will use integrated sensors to optimize the environment for adaptability to its occupants.

In 2019, occupants will be seeking better and better buildings. Companies are abandoning older office buildings for newer building stock equipped with more robust power, communications and digital climate-control systems. We see clients who are willing to pay more per square foot for buildings that offer more natural light, more flexible floorplates, more sustainable features and better technology infrastructure.

Online Retailers Will Continue To Open Brick-And-Mortar Stores

Physical retail is far from dead.  We think the retail industry stabilized in 2018.  We now expect retailers to begin reinvesting in their physical footprints to achieve a better omnichannel shopping experience for consumers.

In addition, digitally native (or e-commerce only) retailers will increasingly shift to open physical stores to grow their business and retain more customers.

In terms of retail and real estate, we think retailers have finally learned what to do. There’s a lot of investment, changes and closures that had to happen to adjust to omnichannel.

Investors To Favor Industrial, Multifamily…And Maybe Even Retail Assets

It comes as no surprise that industrial and multifamily assets would be a favorite for investors in 2019.  More interesting is the fact that retail is expected to attract interest from investors in 2019, particularly those assets ripe for redevelopment and upgrades.

It’s true…many shopping center properties are just not going to come back as successful retail assets. But many are priced below replacement cost and have good locations for alternative uses.  If a site is sufficiently large, mixed-use is a great option for close-in suburbs.  There’s also the opportunity to turn these sites into distribution facilities.

Check back next week to see the next batch of trends to follow.

 


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About Beau Beach, CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Prowess IRES which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 414.324.4938, 615.603.9770, click to schedule a call or Beau@ProwessIRES.com