The Trend Report: Emerging 2017 Insights

While just a mere month into 2017, there are already a few emerging trends that savvy commercial real estate investors are taking notice of according to the 2017 Emerging Trends in Real Estate report recently released by the Urban Land Institute and PWC. After reading the report for ourselves, here are our top six emerging trends to watch out for in 2017!

Demographic Shifts

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We’ve gone into great length previously on the impact that the rising number of Millennials and Baby Boomers entering and exiting the work force is forecasted to have on the commercial real estate market, and the crossover point where more Baby Boomers are retiring than Millennials entering the labor force is now upon us. Boomers are retiring at a rate of approximately 10,000 per day and America’s population of persons over the age of 90 has almost tripled since 1980. This, combined with the fact that many younger (millennial) households are falling behind, has left older and younger households competing for housing in many of the same places, indicating that Multi-Family developments with evolving amenities will continue to stay a strong investment.

Urbanization / Densification

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This trend, which has been steadily growing over the least several years, seems to have no indication of slowing down any time soon as walkability, extensive live/work/play opportunities and alternative transportation options continue to draw people of all ages into the urban core. Developers are also continuing to follow this trend, preferring to invest in creating high-density mixed-used centers that provide a mixture of luxury living spaces, retail, work, parks, gathering and entertainment spaces. Even the suburbs are feeling the pressure to become more “urban”.

The Suburbs Aren’t Dead

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While urbanization is still a hot trend moving into 2017, it’s important to note that most suburban communities are still flourishing despite the fanfare of the urban movement. In fact, in America’s 50 largest (and most urbanized) metropolitan areas, suburbs account for 79 percent of the population and (despite popular and media perception) 75 percent of the 25-35 year old population. So while many are feeling the pressure of the urbanization trend, it’s important to note that our nation’s suburbs are still poised to maintain their relevance and predominance.

The Rise Of The “Surban” Neighborhoods

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As we just stated, the suburbs are far from dead. However, the market is beginning to see a trend toward the urbanization of existing suburban neighborhoods and new developments that are shifting their focus to provide greater density, diversity, walkability and transit accessibility. This trend is due in large to the Millennial preferences for these qualities, which studies have found they find equally attractive in the suburbs as they do in the densest urban core. This has seen more and more retail stores transforming their spaces into locations that sell experiences, rather than goods and more developments combining housing and retail to satisfy consumer demand for places that offer convenient, car-free shopping.

Forward Looking Strategies

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One trend that has become glaringly apparent as we move into 2017 is a push toward investors and property owners utilization of forward-looking strategies. Whether it be opting for the build-out of dynamically configurable office spaces that can easily be transformed to suit a variety of tenants or the conversion of class B and C shopping centers into last mile distribution centers to help e-retailers tackle the holy grail of same day delivery, investors are looking forward to the future and taking drastic steps to breathe new life into outdated spaces that are rapidly trending towards functional obsolescence. It seems that while often viewed as a “disrupter” for real estate, e-commerce is gradually emerging with a symbiotic relationship beyond the first clicks-and-bricks rapprochement.

Labor Shortages

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As labor shortages in the construction industry continue to rise across the US, demographic projections are indicating that the issue will only intensify over the coming years. As of April 2016, there were over 200,000 unfilled job openings in the building and construction industry. More young people than ever are seeking higher education and therefore remaining out of the workforce longer at the same time that the Baby Boomer generation is slowly leaving the labor force creating a significant shortage of skilled laborers. These shortages are poised to not only reduce the number of projects undertaken by developers (some are already hypothesizing that this may have been a key factor in preventing over building in 2016) and delay the timing of these projects, but may also drive up the cost of new development. This, in turn, may see a push towards developers opting for projects that target the luxury end of the market in order to help cover costs.

screen-shot-2017-02-07-at-10-09-10-am“One thing is coming through loud and clear from the Emerging Trends interviews: you can find opportunities in any of the markets in this year’s survey, whether the market is number-one Austin or number-78 Buffalo. It all comes down to your strategy, risk tolerance, return requirements, and access to deals. If the markets are the squares on the chessboard and the property sectors the pieces, then there is an almost infinite combination of moves that can be made.”

To read the rest of the Urban Land Institutes report on Emerging Trends in Real Estate for yourself, click HERE.

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KADIE PANGBURN
MARKETING COORDINATOR
CRUNKLETON Commercial Real EState Group
KADIE@CRUNKLETONASSOCIATES.COM

Trend Report: The Future of Retail in 2017 – A Changing Environment

As a commercial real estate broker I am constantly asked: what is driving the future of retail and retail shopping centers? What changes, if any, can we expect to see in the coming years?  And how are property owners dealing with the effects of e-commerce on brick and mortar retail?

So today we are going to take a few moments to try and answer a few of those questions, take a look at the changing landscape of retail shopping and the effect it is having on commercial real estate right here in Huntsville, Alabama.

Let’s start by looking at e-commerce, its effect on physical retail, and the opportunities it is providing to those that are willing to adapt to a changing marketplace:

It is no secret that online shopping is influencing the traditional brick and mortar retailers. Black Friday and Cyber Monday 2016 were the largest online shopping days in history and that trend will likely continue. However, does this mean that we are seeing the beginning of the end for brick and mortar retail? Absolutely not. What we are seeing instead is a shift in the traditional shopping center layout and tenant mix. The typical retail store is getting smaller and retailers are focusing more and more on the experience of shopping.

Labeled “Experiential Retail”, retailers are shifting their focus to providing shoppers with a fun and exciting experience. Shoppers not only want to touch and feel the product they are buying, but want to be entertained in the process. This is something that e-commerce can never provide. And not only are the younger generations demanding that experience, they are also willing to pay more to get it.

So how does Experiential Retail and the changing layout of brick and mortar retail affect the commercial real estate market?

Well, this desire for a better experience doesn’t just start once a shopper walks through the door. Consumers want the entire experience to be better, which includes the physical layout of the shopping center and the overall destination. Urbanization and the revitalization of downtowns across the country are a perfect example of this. Even right here in Huntsville we are seeing consumers demand a different experience. The success of projects like Campus 805, Lowe Mill, and The Garage at Clinton Row are great examples of the adaptive reuse of properties to provide a better experience.

What does all this mean for existing shopping centers and landlords?

The term adaptive reuse that I mentioned previously is going to be critical for Landlords of traditional shopping centers. As retailers continue to shrink their footprints, Landlords are going to have to get creative in how to back fill the big box spaces left by shrinking retailers. We are already seeing examples of this across the country and even right here in Huntsville. Large box spaces left vacant are being backfilled by entertainment type uses such as indoor go-cart tracks and trampoline arenas. Medical and dental concepts are even starting to open up locations within retail environments, backfilling former retail stores. There are opportunities out there for Landlords that are willing to think outside the box and be creative.

Despite the ever-growing presence of e-commerce, we are far from the end of brick and mortar retail. Consumers are willing to pay for a better experience and the ability to touch and feel what they are buying. This is evidenced in the fact that online giant Amazon is getting into the brick and mortar game with physical retail stores and even a grocery store. There will always be a place for the traditional retail store, it just might look different and be located in different areas than what we have grown accustom. Retailers and Landlords that are willing to change their mindset and adapt to the new environment will have a competitive advantage going forward.

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Originally from Tennessee, Zac studied business management at Samford University. After moving to Huntsville in 2001, Zac started out his career in banking, wealth management and financial planning. In 2010 he joined Crunkleton and has since become the VP of Leasing for the commercial real estate group where he focuses on retail leasing and development.

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Zac Buckley
VP of leasing
CRUNKLETON Commercial real estate group
ZAC@CRUNKLETONASSOCIATES.COM

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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Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

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

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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Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

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