Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
What are the most interesting trends that followed the Great Recession (December 2007 to June 2009)?
The aging Baby Boomer population is the “demographic cliff” that will impact the working-age population base and ultimately demand for commercial real estate. On the other end of the spectrum, Millennials are the generation we can’t stop talking about. They now comprise the largest generation in the U.S. labor force and are influencing housing, work-life balance and workplace trends. It’s safe to say that the rise of the Millennials has been one of the most impactful events of the last decade.
Longest Economic Expansion
In the summer of 2019, the U.S. economy officially entered the longest post-war economic expansion…surpassing the previous record of 120 months experienced from 1991-2001.
Tech Becomes More Important
Looking back at the recovery of the last 10 years, tech-related growth was a key driver of economic expansion in the U.S. The acronym TAMI, which stands for technology, advertising, media and information, came on the scene earlier in the decade and is now commonly used to describe the tech sector. TAMI tenants are also driving leasing in the office market and now account for a larger share of activity than traditional FIRE tenants.
Open floor plans became all the rage as employers wanted space efficiencies. Shared offices and short-term leasing became community-focused and collaboration-driven. Flexible work schedules and work-from-home opportunities have reduced the need for permanent work spaces. As a result, the average SF per worker dropped 8.3% from 2009-2018…reaching 194 SF. Demand for this type of space also resulted in the growth of amenity offerings from landlords.
The reinvention of office space also led way to explosive growth in the coworking sector, which is closing in on 100 million square feet of inventory in the U.S. In some markets like Miami, New York and San Francisco, coworking users account for a huge amount of current office inventory. Globally, the number of coworking spaces has grown exponentially in the last 10+ years and the major players have all shifted over time with WeWork, Industrious, Space and Knotel as major operators today.
The word “apocalypse” has been used to describe the seismic changes taking place in the retail market. Brick-and-mortar retailers have faced many uncertainties in the last decade. The number of store closures that occurred from 2017-19, totaling more than 23,000, far outpaced the number of store closures that took place during the Great Recession (13,000). However, many experts point to an evolution as opposed to a total destruction. E-commerce, which now accounts for 11.2% of total retail sales, continues to drive many of these shifts in the marketplace.
The ever-evolving retail market has had a lasting impact on the U.S. industrial market too. Demand from e-commerce tenants and the way in which people receive goods in the U.S. has allowed the industrial asset class to go from ugly ducking to darling within the last 10 years. As e-commerce exploded and consumers sought faster delivery times, demand for in-fill industrial assets continued to grow. Vacancies reached decade’s low levels and rents grew at rates likely never seen before. Amazon is synonymous with this trend with 40%+ market share of online sales.
Apartments are hot
Several factors have led to one of the strongest multifamily markets in recent history. Demand for rental housing grew out of necessity post-Great Recession, as many were locked out of the housing market. This inability to afford ownership, shifting housing preferences among Millennials and urbanization trends have pushed the U.S. homeownership rate down to levels not seen since the mid-1960s. While rates have recovered since bottoming in 2016, the market is nowhere near its 2005 peak of 69%. Developers have responded to this surge in rental demand with development as well. While the oldest Millennials are beginning to purchase homes, a large contingent are still renters. Similar to the office market, this age cohort has categorically changed apartment living.
The last 10 years in commercial real estate have proved to be among the most transformative the industry has ever seen. Look for the market to continue to evolve as we move through the next decade as we will likely see another recession (or two), several political leadership changes and continued advancements in technology.
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About Beau Beach, MBA 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 Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida 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 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com