How Changing Demographics Are Shaping The Future – Part Two: Millennials

In PART ONE of this post we took a look at how the baby boomer generation is primed to impact the future of the economy in a big way, affect market trends and influence the commercial real estate industry in the coming years.

Today, in part two, we’ll be taking a look at their equally economically powerful counterparts, millennials.

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To briefly recap, the baby boomer and millennial generations comprise a combined 61% of the total population.  This means that their likes, dislikes and even mere preferences hold a lot of sway on the future of the market and in turn the future of the commercial real estate industry.

By shifting the focus away from property types and onto the types of generations who live, work and shop in those properties, we can gain new insights and examine possible trends for the coming years.

Now that you’re all caught up, let’s examine how millennials are already shaping the future of the marketplace.

Born between 1980-2000 and totaling about 80 million Americans, millennials spend approximately $600 billion annually already.  By 2020 when the majority of them will have entered the workforce, they are expected to be responsible for a much as $1.4 trillion in spending per year, representing 30% of total retail sales.

With that in mind, let’s examine a few of the millennial trends that are set to have the largest impact on the commercial real estate industry in the coming years.

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First, millennials are going to have a big impact on the future landscape of office spaces.  This is due in large to this generation’s preference to view the office no longer as a place dedicated to individuals tasks, but as “a meeting place for a diverse group of people to gather, share and collaborate,” stated a report by Jones Lang LaSalle.  The report when on to explain that, “offices are becoming places where people with common goals, but diverse sets of skills meet to generate new ideas.”

However, not only is the interior landscape of our office spaces and the dynamics of how we function within the walls of those spaces set to shift, millennials are also having an impact on the very location of those offices as well.

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More than anything millennials crave community and collaboration, and this translates into a deep love of mixed-used, walkable, live, work, play environments.  And while many millennials are being drawn to urban downtown areas for this very reason, research has shown that the suburbs are not dead. However, if they wish to adapt to this shift in demand will have to prioritize creating mixed-use, walkable neighborhoods that are transit accessible.

One interesting impact that the, tech savvy, online shopping, millennial generation will have on the commercial real estate industry in the coming years is in the industrial sector.

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With the rising demand for online shopping and faster delivery times, comes an increased demand for industrial distribution and fulfillment centers.  “An estimated 30 percent of the U.S. industrial big-box demand has a correlation to e-commerce, and this will not abate anytime soon. Major retailers continue to open new fulfillment centers that offer access to the nation’s key population centers and infrastructure, and are opening smaller centers to enhance coverage in secondary markets.” stated La Salle.  “Currently, around 59% of the country’s population shops online; millennials, a generation raised on technology, comprise the majority.”

Lastly millennials place a large priority on price, having lived almost half their life during the great recession, “they habitually use mobile devices to compare prices while shopping in stores and tend to favor value-oriented retailers like dollar stores, second-hand stores, drug stores and off-price retailers,” commented La Salle.  Shop’s topping the millennials most visited list include: Forever21, Old Navy, Marshalls, Target, Walmart, Macy’s, Kohl’s, TJ Maxx, Urban Outfitters and JCPenny.

Millennials are a tech-savvy, ambitious generation who want to be “in the know,” love to participate and engage, crave authenticity, are tremendously influenced by their friends and want to make a difference with their lives.  But it’s also important to keep in mind that these millennials are just now coming into their own, entering the workforce and about to start families.  Keeping tabs on this demographic over the next several years will give many investors a leg up to be prepared for the shifting demands of the future marketplace.

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KADIE PANGBURN
MARKETING COORDINATOR
CRUNKLETON & ASSOCIATES
KADIE@CRUNKLETONASSOCIATES.COM
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How Changing Demographics Are Shaping The Future – Part One: Baby Boomers

We talk about baby boomers and millennials a lot when exploring trends in CRE, this is due by and large to their sheer numbers and buying power. Comprising a combined 61% of the population, their preferences hold a lot of sway on the economy, market trends and commercial real estate industry.

By shifting the focus away from property types and onto the types of generations who live, work and shop in those properties, we can gain new insights and examine possible trends for the coming years.

Taking this approach to examining the market has become even more important in recent years as shifting demographics mean big changes for the commercial real estate industry.

article-2389095-1B387AEA000005DC-638_964x746Let’s take a moment today and look at Baby Boomers.

Born between the years 1946-1964 and representing 26% of the US population at the end of 2014, Baby Boomers (about 75 million people) are a major force in the world and US economy.

With that much buying power, wise investors are examining what boomers need, want and do.

“The boomers have the most disposable income in the system and will for a number of years. There are more millennials, but they don’t have the assets of the boomers,” said Rodney Johnson in an article by US News.

So not only does this generation have the sheer numbers to make them a powerful force in the economy, they have the money to back up their numbers as well.

Let’s take a look at a few baby boomer trends that will have the largest impact on the commercial real estate industry in the coming years.

First,  boomers want walkable neighborhoods. Most baby boomers have spent half of their lives in the car commuting to work, ferrying children to dance lessons and soccer games, and now many of them are harking back to their earlier years when they lived on a block with a grocery store down the street and a restaurant on the corner.

Second, boomers love to travel, but are still very budget conscious. When they go out to eat, casual restaurants are their venue of choice. However, states Johnson in the same article by US News, “Boomers like to go out, but fast food is not where they are. They want a little cache, but still in a modest price range.”

Lastly, and this is the one that will be shaking things up across the commercial real estate industry, Baby Boomers are simply getting older. The youngest of their generation is now age 50 and over, and the oldest will begin turning 70 in 2016. According to GlobeSt.com, the senior population in the US is “projected to grow from about 40 million in 2010, to about 71 million by 2030.”

This large aging generation has many implications for the commercial real estate industry, but perhaps the biggest of which is going to be the increased need for the health care services, which in turn will drastically increase the need for commercial real estate to house those services over the next several years.

Check back next month when we explore the boomers younger, but equally as powerful counter part, the Millenials.

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KADIE PANGBURN
MARKETING COORDINATOR
CRUNKLETON & ASSOCIATES
KADIE@CRUNKLETONASSOCIATES.COM

The Top 6 Reasons to Hire a Commercial Property Management Team

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We meet property owners all the time who ask us just why they should invest in hiring a property management team. So, here is C&A’s “Top 6 List.” Our top 6 reasons to invest in a great property management team:

1) Experience
Right off the bat, it’s likely that, unless you’ve been around the block a time or two, a trained commercial property management team is going to have more experience with what it takes to successfully manage your investment property simply because it’s what they do, full-time, 24/7. Not only do they have the first hand experience of successfully managing other commercial investment properties, they also have hours and hours of rigorous training, testing and certifications on how to do that job to the very best of their ability.

2) Market Knowledge
As a property management team, it’s our job to stay in tune with the market and know what’s going on in the area. This way we can help suggest how to best position your property for success.

3) Communication
Unless running your investment property is your full-time job, chances are that you are a busy person with other things to do than answer tenant phone calls at all hours of the day, phone in work orders, negotiate with vendors, compile annual property reports for shareholder meetings, and connect with your tenants in a meaningful way that will build trust, help maximize tenant satisfaction and boost overall tenant retention.

4) Troubleshooting
Again, this is what our property management team does for a living. We are skilled at dealing with any situation that arises quickly, effectively and cost efficiently, while at the same time making sure to conduct ourselves in a professional manner that gives both the tenant and property owners the respect they deserve.

5) Maximized Returns
The number one goal of our property management team is to help you maximize your return on your investment. This means we will do more than just building maintenance; we are trained to streamline your operations and take them and your ROI to the next level.

6) Protect Your Investment
Just like a new mother wouldn’t hand over her newborn baby to just anyone, our property management team is here to help you protect your investment and care for it as if it was our own. Our team is built around a core structure of individuals who have had personal experience as investment property owners themselves and gone through rigorous professional training to make sure they can protect every investment property we handle as if it was their own.

So, if you own a commercial investment property and you’re curious to learn more about what a property management team could do for your ROI, make sure to contact us at info@crunkletonassociates.com!

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KADIE PANGBURN
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CRUNKLETON & ASSOCIATES
KADIE@CRUNKLETONASSOCIATES.COM

 

5 Ways To Minimize Your Investment Risk

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While commercial real estate in the U.S. continues to be a safe haven for investors seeking higher yields with relatively low risk, new investors often worry they will find themselves in over their heads, saddled with the next Mr. Blandings Dream House or Money Pit.

However, investors can minimize their investment risk exponentially by doing some basic homework on their potential investment properties. We recommend always looking into these 5 factors as part of due diligence when determining the potential risk factor for any investment.

1) History Of The Property

When looking to invest in a property, one of the first things investors should look into is the history of the property to find out what type of uses the building, or land the building is situated on, has been used for in the past.

Finding out if the building has possible asbestos issues, or if the land has ever hosted a gas station, dry cleaner or other business where the possibility of toxic environmental issues could be a concern, or has had a history of past structural or mechanical issues, can minimize your risk of getting saddled with costly future expenses.

A phase I environmental report is always recommended when making a real estate purchase.

2) Tenant Credit

Whether you’re purchasing an investment property with existing tenants, or planning on leasing out your property once it’s purchased, making sure you have good tenants with a positive credit history can save you from costly future property management concerns.

And while purchasing a property with a creditable tenant as an existing lessee, who has the financial stability to maintain their lease for the long term, may cost you more on the front end, it can save you from spending money in the future on legal fees or expensive renovations in the event that a less creditable tenant vacates the property before their lease term and leaves you having to attract new, more creditable, clients to fill the space.

3) Financial Terms

Another area to educate yourself on before investing in a property are the loan terms and what they will mean for you right now and what they will mean for you in the future so you can make sure to strike the most favorable terms for your situation.

Ask questions like, “Will the loan be a Non-Recourse, Partial Recourse, or Full Recourse loan? Will it be a floating or fixed rate loan? Will there be a swap or not? Are there defeasance fees if I decide to sell before the loan matures?”

These questions will help keep you informed as to all of the potential financial risk factors as well as assist in your overall plan for the investment.

4) Market Trends

Market trends are another important area of research when choosing in which potential property to invest.

One of the main things to look for are the vacancy rates for the area over the last 3-5 years. Obviously, you’re not going to want to pay as much for a building that has an average vacancy rate of 40%, compared to one that has an average vacancy rate of 4%, especially if the surrounding area has ample vacancy increasing competition for tenants.

The other is to try and determine if the property is in an upward trending area, or in an area situated in a downward trend. Locating potential sites in new up and coming areas that are just starting to take root, is often a great strategy for investing while the prices are still low, and then seeing substantial investment value growth as the area fully develops. Factors that can influence these trends include: zoning changes, improved infrastructure, new developments, and lack of supply in adjacent areas.

5) Have A Plan For The Property

Finally, before you sign on the dotted line, one of the biggest factors in minimizing your investment risk is to have a detailed plan for the property. Simply buying land on gut instinct, just to own property without any plan on what you will do with it, can often be a costly mistake.

We recommend sitting down and writing a detailed plan for what you intend to do with the property/building/land you plan to purchase. This should include any developments/improvements you plan to make and what you approximate the return on those developments/improvements will be. It should state what your rental plan is for the property, how long you plan to hold onto the property, and what the intended use will be for the property. Will this be an income producing property, a value added asset property, or do you simply want to hold onto the land long term for a future date?

Finally, your plan should include a detailed exit strategy, how/when do you plan to off load the property after you purchase it? What will your estimated costs for selling the property be and what sort of tax liabilities will you be accountable for if you choose to sell?

Investing in commercial real estate can be daunting at first. However, with a solid plan in place, a little research and by properly educating yourself on the potential properties you can substantially minimize your investment risk.

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KADIE PANGBURN
MARKETING COORDINATOR
CRUNKLETON & ASSOCIATES
KADIE@CRUNKLETONASSOCIATES.COM