The area’s commercial real estate industry continues to cycle along, most recently on an upward swing — with the caveat that properties operated within 50 miles of the capital of the free world may perform differently than those located along Main Street USA.
The waters continue to muddy in the office market, as the existing stock ages in place, generic (but often well-located) buildings continue to underperform and new wrinkles to the fabric of the market, most notably office sharing and “authentic space,” become buzzwords while providing an impetus for change.
While this trend seems to be gaining momentum, know that property owners cannot ignore the cost of having to abruptly re-tenant spaces and total floors, but also know that speculatively designed creative space is not here on wide scale; firms like Regus, WeWork and CIRQL offer temporary space, often to millennials, with permanent hipness.
Mixed-use projects are much harder to build backwards, meaning engineering the desired projects into older spaces, so look for minor refurbishments by landlords as they aim to accommodate the needs of new tenants.
Neighborhoods matter, as the popular Town Center concept demonstrates. However, those amenities come at a price.
Prediction: Older single-story office should fare O.K., as it can layout well after removing the ceiling grid and walls to create an open space environment that can be made to feel more modern. As for commodity suburban boxes with invisible amenities, tired common areas and fatigued ownership, they’re DOA.
Logistics is defined by the Council of Supply Chain Management Professionals as the process of planning, implementing and controlling procedures for the efficient and effective transportation and storage of goods including services and related information, from the point of origin to the point of consumption, for the purpose of conforming to customer requirements.
While that’s a mouthful, this continues to drive the warehouse-occupying community as “better, cheaper, faster,” and becomes the mantra for those retailers who are experiencing success online.
And last-mile delivery has given way to a new term: last touch, neither of which offer a clear vision of their optimum facility. Occupiers continue to debate whether retail store fulfillment should be in the same building as e-commerce uses and labor issues (too few applicants and too expensive) continue to dog the industry.
Prediction: The warehouse market will continue to strengthen, as evidenced by increased rental rates, increases in the number of and aggression of buyers, the continuity of sales activity and the overall quality of the buyers and occupiers. E-commerce users are defining and redefining their requirements each quarter and the concept of last mile (read: last touch) delivery are just coming into view.
Flex space is where America works. Small bay industrial is home to thousands of local companies, most of which are not household names. The plumber, the electrician, the utility contractor, etc., stay in their spaces until extraneous forces apply pressure otherwise. Retirement via selling to a competitor often forces the new company to move to larger quarters, or skillful management into new business lines which boost growth beyond the confines of their current space.
Occupancy in these buildings is driven by a landlord’s ability to grow a tenant in its portfolio, so scale matters, as does service — just ask the tenant who told his landlord to send the plumber.
Prediction: As long as the economy is in decent shape, rents will continue to inch up and landlords will be slower to introduce new product, primarily as a function of the slowing pace of entitlements and the bottled-necked permitting process of local governments.
The analogy of a corn maze comes to mind as landlords contemplate the asset class known as retail and how it can fit in a field of Internet mouse clicks, pop-up stores, co-branding and clicks-to-bricks operations (e.g., eyeglass retailer Warby Parker).
As has been the case for many years, malls dying, malls being redeveloped into senior housing, malls being demolished for big box centers and malls being repurposed for higher education continue to make headlines.
Savvy retailers are reinventing their in-store experience (visit your local Bed Bath & Beyond to see how) at the same time they are refining the customer’s online experiences.
But in many circles we hear that retailing is not dead — rather, it’s undergoing a profound cleansing — but there will be winners and losers. Those that survive will include a meaningful digital infrastructure and omnichannel marketing as retailers figure out who their customer is.
Prediction: More bankruptcies will be part of 2018, but also part of how the retail industry unfolds in a competitive, but digital, sea of alternatives. Pop-ups, startups and spinoffs will be the order of the day.
Owen Rouse is senior vice president, director of capital markets, with Manekin LLC, in Columbia. He can be reached at 410-290-1400 and [email protected]