In 2019, the United States is the most preferred location for commercial real estate in terms of inbound capital according to the Deloitte 2019 Commercial Real Estate Outlook. This Outlook report hits hard on the ability of investors to be agile in their real estate businesses, but the agility must be based on awareness of trends that are occurring based on trend analytic and artificial intelligence applications that allow a business owner to see what is happening in and around his property so that decisions can be made quickly to adjust and/or mitigate and survive changes.
Some of the key terms popping up in the commercial real estate investor and real estate investor trust literature include diversification, multi-use properties, healthcare properties, data centers, distributions centers, flexible leases, and flexible spaces.
Healthcare Facilities Follow Domestic Trends
Investors seem to be increasing their investments in health care facilities that include senior housing and in data centers according to the 2019 CRE Outlook. Health care and senior living residents are looking like safer investments because they are not as dependent on global trade but more on domestic trends, demographic trends, and the health of the overall economy.
Data Centers Float Because Digital Goods Continue to Move
The 2019 CRE Outlook also shows that investors are putting more capital into data centers in 2019. Data centers seem to be more immune to global trade tensions at the moment because businesses are focused on expanding their digital infrastructure across borders, according to the wsj article by Esther Fung, “Real-Estate Stocks in High Demand as Trade Battle Brews.” Even though physical goods are stopped by tariffs, digital goods are still moving.
Distributions Centers Move Goods Within the Borders
Distribution centers that support the movement of goods within the United States are also looking like safer investments because they will not be as disrupted by global trade tensions that disrupt centers in port cities dependent on global trade.
Simulation Allows Buyers to Visualize Space Options
Investors are including “flexible spaces” and experiential and engaging spaces as part of a more diversified portfolio. When I read the Deloitte 2019 Commercial Real Estate Outlook, the term flexible space seems to refer to a marketing concept rather than the physical reality-morphing room seen on Star Wars. It involves using 3D and augmented reality simulation to allow buyers to visualize a new property in multiple 3D finished options both inside and outside and choose what they like best. I’ve seen an app like this on television recently that helps you visualize how to arrange furniture in an empty room. The buyer participates in the space design.
Varied Experience Adds Value to a Space
Catering to mixed tenants is another way to diversify a property so that they are not all one type and come and go at one time. By making a property a mixed-tenant space, the landlord services tenants that may be office workers or retail incubators mixed in with places to eat, workout, and shop all within walkable distances from one another other. The experience of renting the space is of higher value to the tenant because of the foot traffic and opportunities to network the space provides.
Flexible Leases for Mixed Tenants to Manage Uncertainty and Attract Startups
Working in tandem with the mixed tenant model is another business model that involves offering short-, long-term, and hybrid lease agreements of different lengths to varied tenants to fill vacancies in the short-term rather than having spaces continue to be vacant. The shorter lease lengths appeal to startup businesses and to established businesses struggling with market uncertainty. This strategy is a form of thriving on chaos in that agility is planned and business tenants can move around within a space or in and out of a space more easily as business fluctuates.
The message I received loud and clear from the wsj article and the 2019 Commercial Real Estate Outlook is that investors must become comfortable with change and agile in maneuvering to survive in the current marketplace.
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