Politics, Technology Disrupting Commercial Real Estate

Political polarization can have far-reaching effects–even into commercial real estate–reported The Counselors of Real Estate, Chicago.

From state and local budget impasses to halted infrastructure repairs to potential immigration bans, political polarization can disrupt commercial real estate, CRE said, noting the issue represents one of the top issues facing real estate today.

“Political polarization and global uncertainty are the top disruptors that dominate the news headlines today and, therefore, have a significant impact on real property,” said Counselors of Real Estate Chair Scott Muldavin. “Polarization leads to bad short-term decision making–which you can see almost constantly in policies–and ongoing dialogue on issues as wide-ranging as healthcare, infrastructure and tax reform. Immigrants are also a prime source of new household formation, so uncertainty about immigrant entry and their status has a real effect on rental property and home purchases.”

Other issues affecting real estate include technology, generational changes and retail disruptions, CRE said.

A wave of commercial real estate technology innovations could change the way real estate is bought, sold and managed, the report said: “Big Data has come to real estate planning and space planning decisions are now informed by real-time information. When autonomous vehicles cost less than cars, it will impact parking lots, garages, and much of our streetscape.”

Generational changes such as Baby Boomers’ and Millennials’ differing views of where they live, work and play is increasingly affecting property markets as well, the report said. It noted that a “significant” number of today’s real estate decisions are made by people under 40, but said many Baby Boomers remain engaged far beyond the traditional retirement age. “The generations are crossing paths everywhere: in the workplace, in housing and at the local bar and grill, intersecting and sharing spaces, despite their often disparate priorities when it comes to the built environment,” the report said. “Studies project that Millennials will ultimately behave in a fashion similar to Boomers….but do so ten years later.”

The challenge for builders, landlords, owners and tenants alike: finding an acceptable design balance that appeals to the contrasting constituencies they serve both now and in the future, CRE said.

The trend toward transforming retail shopping into an “experience” continues, offsetting shrinking in-store purchases, the report noted. Many traditional retailers are adopting a more “Amazon-like” approach by creating new warehouses and distribution methods while–ironically–some e-retailers including Amazon are opening physical stores.

“It is no secret that America has been ‘over-retailed’ for decades,” the report said, noting that the United States has 40 percent more shopping space per capita than Canada and five times more than the U.K. Retailers unable to transition into newer retail formats have been forced to shutter physical stores, migrate into “virtual” space or discontinue operations entirely.

But the U.S. does not face a retail “apocalypse” despite this massive repositioning, CRE said. Restaurants are prospering and service-oriented outlets take up ever more space. “Grocery-anchored malls remain steady–at least for now, although change is afoot as grocery models join the fray and reinvent themselves,” the report said. “Retailers who cater to a fresh or appealing niche in the marketplace are thriving, exemplified by ‘fast fashion’ retailers [such as H&M and Zara]. As retailers refine their inventories, distribution methods and fulfillment models, the retail market will survive and even prosper–but it will do so in fresh, new ways.”