“With great power comes great responsibility.”
- Benjamin Parker (Spiderman’s uncle)
As quirky as it might seem to start an article about real estate with a comic book quote, I think it actually applies to the commercial property market quite well.
Think about it, the towering skyscrapers in New York, gigantic e-commerce stock storage facilities, even office-sharing start-ups like WeWork, recently valued at $35 billion according to Bloomberg - all of these industry behemoths scream one thing - power.
But in order to retain this power and even more so - increase it, these companies face an underlying responsibility to continuously be as up-to-date on industry trends as possible. Their ability to stay ahead of the curb and continue to grow is directly related to that responsibility. They are obliged to either plan ahead and develop, or remain complacent, slowly lose market share, fade into the shadows, made obsolete and eventually be replaced.
Okay, perhaps that analogy was a little far-fetched. But I do stand by the underlying point - keeping up-to-date with industry trends and preparing for what the near future has in store is something that every proactive commercial property firm must do.
With that in mind, here are the 3 commercial real estate trends that you should be on the lookout for in 2019:
1. A potential decrease in office construction
The office market has always been a quintessential part of commercial real estate. With an abundance of fresh new businesses both in the form of traditional company setups and innovative start-ups, as well as a never-ending list of established enterprises, the demand for modern office environments has been steadily growing.
Up to this point, 2018 has been a stellar year for new office space construction, with almost 60% of the brand new office space delivered to the market being leased as soon as building was complete. In the USA, the first two quarters of 2018 showed an influx of 28.8 million sq. feet of new office space, a higher number than was observed in the same period in 2017.
That being said, David Bitner, head of America’s capital markets research at Cushman & Wakefield, says 2019 will be a year that developers might start to pull back. Among the main reasons for the decrease, he cited ever-increasing costs of construction, concerns regarding the real estate cycle as well as problems with zoning.
To put that into monetary terms, according to Bitner, the projected space for U.S.-based new office deliveries in 2019 should be around 54.7 million sq. feet. If correct, this would mean a drop of over 18% from the 2018 figure, which is expected to amount to 68.4 million sq. feet.
2. The ever-increasing influence of E-Commerce
Even though the roots of online shopping lie in the late stages of the 20th century, it was really the dawn of the new millennium and rapid IT development that made e-commerce a household amenity. According to the U.S. Department of Commerce, the current proportion of online sales of goods and services to the total number of retail sales is as high as 30%.
The growth numbers are also incredibly contrasting, with E-Commerce beating out traditional brick-and-mortar stores almost 4x.
However, while the numbers, as well as the media viewpoints, seem to suggest that the end of traditional shopping is nigh, the actions of industry giants like Amazon paint a different picture. With their recent acquisition of Whole Foods, a famous American health-food network, at the mind-boggling sum of $13.7 billion, Amazon is showing increasing interest in traditional sales outlets.
The reasoning for such grandiose purchases is understandable though - having comfortably secured their position at the top of the E-Commerce “food chain”, Amazon is now looking for new avenues to further increase their power and influence. Choosing a food store was also not a coincidence, grocery shopping is somewhat difficult to effectively conduct online, not to mention the fact that the majority of people still prefer to purchase groceries in physical stores.
This relates to commercial real estate properties in an interesting way. In 2019 as well as the years to come, investing in local storage facilities and large-scale warehousing is going to yield significant returns as more and more shopping will be conducted online. Whether it’s brand new construction projects or repurposing of strategically-located existing properties, commercial realtors will have many financially-beneficial options to work with.
Moreover, as the Amazon example that I mentioned above shows, brick-and-mortar shopping facilities are not going away any time soon. What realtors will have to assess more carefully is the longevity and sustainability of each given property. However, the assumption that brick-and-mortar shops are on the way out is not accurate, and should not play a part in the process of commercial property sale and letting in the near future.
3. The continuous digitalization of the market and increased focus on visual content
Despite the continuous digitalisation of our world and professional photography being engrained in both our everyday lives as well as the world of business, the commercial real estate sector has famously not kept up with the times. In fact, it is still very common to see a listing for a multi-million euro commercial property with amateur cellphone photography or even worse - no photography at all.
The common misconception is that business clients only care about the raw data, things like geographical location, amount of floor space, cap rate % and so on. The assumption is that people purchasing these properties will be all about the numbers and that they will make their decision purely based on that. Quality of photos should not have an effect, right?
However, as I have mentioned in a previous article, humans are notoriously visual creatures, and we are biologically programmed to be drawn to more visually pleasing things. This is even more relevant for the Millennial generation, as well as the up-and-coming Z generation. With smartphones and computers being a routine part of their lives, these individuals value great visual content and are much more likely to interact with aesthetically nicer property listings.
What this means is that as more people from these generations flock the industry, the market will be forced to adjust accordingly. One of the ways of doing it will be putting much heavier emphasis on the visual side of sales & letting.
To be adequately prepared, realtors will have to make professional photography an integral part of putting up a new listing. And unfortunately, despite the ever-improving quality of smartphone photography, delivering sufficient quality photography & videography by their own means is just not possible.
And that is not even half of it. If you are like me and you are not convinced by just the aesthetic value of professional pictures and videos, there is a myriad of quantifiable benefits that I am confident you will be interested in:
- Buyers spend up to 60% of their time on a property page just looking at pictures. Having professional ones will leave a much longer-lasting impression.
- Premium pictures allow you to ramp up the asking price and depending on the property, you could increase the amount by as much as 7% and still make the sale.
- Because great pictures draw more attention, your sales cycle can be sped up by up to 32%, leaving you with more time to work on additional properties.
- 42% of property listing pictures do not feature professional editing. Skilled image retouch is what separates good photography from stunning, highly-converting professional photography.
In short - professional photography sells. It can improve your business on multiple levels while also freeing up more time for you to do what you do best - work on finding and selling more excellent properties.
Being competitive in the world of commercial real estate is a lot of work. Planning ahead and anticipating what the market has in store is just one way of maintaining a competitive edge.
2019 is shaping up to be a year of decreased office space sales and even more action in the field of storing facilities. Brick-and-mortar selling outlets are still not going anywhere, but realtors will have to be even more selective with location and ROI calculations.
Finally, the importance of the visual representation of your properties is only going to increase. Industry specialists who prioritise the use of conversion-optimised photography and include it in their day-to-day work will experience greater short-term as well as long-term yields. On-demand photography services like Lemon One should inevitably become part of the commercial real estate value chain.
www.lemonone.com/real-estate - on-demand property photography experts