In a matter of just a few short weeks, 2019 and an entire decade will come to a close. This year has taken a surprising turn for the Commercial Real Estate (CRE) market. An extended expansion phase has experts adjusting their projections, and CRE prices continue to grow. With healthcare shifting to more outpatient clinics and technology affecting CRE, now is a crucial time to stay up-to-date with CRE trends. These are some of the trends the HBRE team has been monitoring in 2019 and will continue to review in 2020:
2019 Market Overview
CRE prices increased in Q2 of 2019. According to Real Capital Analytics (RCA), there was a price increase of 6.7%, with industrial, apartment, and office as the leading property types. The overall transaction volume also rose by 2% in Q2, to $119 billion.
Additionally, the National Association of Realtors recently released its Q3 Commercial Real Estate Market Survey results. NAR reports that the small CRE market, which includes sales of less than $2.5 million, had a 3% sales volume increase since last year. Furthermore, NAR’s data explains that cap rates are decreasing, contributing to the rising prices—especially for industrial properties and apartments. The apartment sector in particular is experiencing low vacancy rates and raising their rent prices accordingly.
The Importance of Technology in CRE
Telecommuting, artificial intelligence, and virtual reality are becoming must-haves in the workplace. More tenants and individual company employees are beginning to expect the inclusion of technology in their work environments. Many CRE owners are growing more aware of this new standard.
In the summer of 2019, Deloitte surveyed 750 CRE executives in 10 countries regarding their inclusion of technology. They learned that CRE executives view technology as not only a way to improve the tenant experience, but to increase efficiency and reduce costs. Over the next year and a half, 42% of survey respondents plan to increase their technological offerings in some way. Meanwhile, 14% plan to make substantial improvements to the technology they provided to tenants. Additionally, over 70% of respondents plan to either continue with their current tech investments or increase them even in the event of an economic slowdown.
Medical Sector Updates
From companies reevaluating their employee healthcare options to retail entities opening onsite clinics, healthcare seems to be on everyone’s agenda. The medical office building (MOB) sector is seeing a strong positive forecast. And there are several factors behind its impressive trajectory.
The MOB sector is responsible for about 10% of the CRE market. This sector has been increasing for four years, with MOB sales equalling $10.4 billion in 2018. The aging baby boomer generation and the increase of outpatient clinics, surgery centers, and drugstore clinics are key factors. With medical-related spending to equal an anticipated $5.7 billion by 2026, the MOB sector is sure to see continued demand.
Deloitte aptly suggests that in the coming decade, the well-known real estate phrase “location, location, location,” will be replaced with “location, experience, analytics.” CRE owners and investors need to envision the long-term goals of their properties to ensure lasting investments. Now more than ever before, commercial properties are expected to have three major components. First, they should be conveniently located for customer access and employee commutes. Commercial properties must create a positive experience for tenants and clients. And finally, offering up-to-date technological amenities is becoming a necessary point on tenants’ and employees’ work space checklists. Time will tell just how relevant and important these factors will be. For now, CRE owners and investors should be aware that these trends will transition into the coming decade.
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
