Commercial real estate industry is full of change
Washington Business Journal - by Allen A. Parker Sr.
Commercial real estate definitely is back, but investors are adjusting to a new world of technological wizardry, demographic challenges and economic caution.
The information highway is racing through the commercial real estate industry, paving the way for a new age in market strategies. New buildings must be equipped and old ones upgraded with the latest technological hardware or risk obsolescence.
A surge in affluent baby boomers and empty nesters and an expanding immigrant and low-income population are creating a need for both top-quality properties and affordable housing.
Economic optimism has made today's real estate investors confident about returns on their investments, but the bluster and swagger of the boom-and-bust `80s has been replaced by more reserved expectations.
The industry recognizes that supply must remain controlled in the face of uncertain demand in some sectors, demographic challenges in others and the whims of changing technology in all property types.
The computer revolution has become a dominant force in the commercial real estate market. Refurbishing old buildings and outfitting new ones with state-of-the-art technology now is essential for industrial, retail and multifamily properties to remain competitive.
Industrial properties
Technology has altered the traditionally staid industrial real estate market. Bar coding on the warehouse floor not only virtually eliminates the standard 2 percent to 5 percent of lost goods annually, it also optimizes storage space, streamlines the movement of goods and accommodates increases in truck activity. This technology, as well as computer-driven "just-in-time" delivery systems and automated storage and retrieval systems, now are a competitive necessity for most distribution facilities.
These changes have, in turn, radically altered the design of Class A facilities, which now include:
• Higher ceilings at 28 to 40 feet vs. 20-foot ceilings in older buildings.
• One truck bay for every 8,000 to 10,000 square feet of space.
• Rectangular building configuration instead of the traditional square layout to allow for more efficiency and access to loading bays and goods.
• Handling capacity, including strong slab-flooring for large, high-frequency shipments.
Apartments
New strategies also are taking hold in the multifamily sector where advanced technologies and demographic changes exert powerful influences.
About 25 percent of renters in multifamily housing units today do a portion, if not all, of their work at home, according to the November 1995 issue of Urban Land, a real estate trade publication. This creates the need for Class A properties that accommodate the information superhighway.
Dedicated work space and the latest telecommunication cabling to service telephones, fax machines and computer modems are required in these buildings if they are to be considered leading edge.
Buildings suited for business activity also must accommodate a new breed of apartment renters, known as "lifestyle renters," who are filling these units. These individuals are affluent baby boomers, empty nesters and seniors with average household incomes in the mid-$60,000 range who can afford condominiums or single-family homes, but prefer the convenience and flexibility of renting.
Demographics
There also is a major demographic shift in the ever-expanding immigrant population, which is creating a dramatic need for Class C affordable housing.
According to estimates in the August 1995 U.S. Bureau of the Census Current Population Reports, immigration has accounted for almost 40 percent of the total population growth in the United States since 1980. The Census Bureau also projects net immigration to this country in the 1990s of 9 million people, matching the great immigration wave at the beginning of this century.
Other population changes, including stagnant wage trends, fewer high-paying jobs for blue-collar workers and the growth of nontraditional families, such as single-parent households, have contributed to the growth of a population group unable to buy homes. The portion of family households headed by a single parent has risen from 12 percent in 1960 to more than 22 percent in 1994, and will continue to grow.
Retailing
Shifting demographics, along with changing economic trends and the erosion of purchasing power are a primary concern for retailers as well -- affecting them and mall owners in a number of ways.
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