2018 Commercial Real Estate Outlook
2018 Commercial Real Estate Outlook
2018 is predicted to remain steady
and consistent reports speakers Alan Nevin, Jim Roherty and Eric Northbrook at
the “Our City” event focusing on San Diego’s Commercial Real Estate Outlook for
2018. Interest rates are forecasted to remain low with a low number of
laborers. Gas prices will also remain low with a healthy economy. Since Donald Trump has made millions as a real estate
entrepreneur, common sense says he will likely implement policies to strengthen
the real estate industry. At the very least, he wouldn’t decide to undermine
it. He wouldn’t hurt his own business, right?
As for San Diego, 2018 is predicted to bring a vast amount of remodeling to our community. 2017 brought multiple new and large buildings to the streets of San Diego, which included the Pendry Hotel, Bankers Hill building boom, the high-rise proposed on 520 W. Ash in Little Italy, and the Roma market little Italy expansion. With these new buildings and projects, it is predicted that 2018 will become a year for re-positioning of long-standing buildings. Office spaces and multi-family apartment buildings are also making a push to incorporate new amenities to attract top tenants. Whereas ten years ago, a well-equipped office or apartment would have been sufficient, today you need to have hyper amenities to push the rents you want to push.
As for San Diego, 2018 is predicted to bring a vast amount of remodeling to our community. 2017 brought multiple new and large buildings to the streets of San Diego, which included the Pendry Hotel, Bankers Hill building boom, the high-rise proposed on 520 W. Ash in Little Italy, and the Roma market little Italy expansion. With these new buildings and projects, it is predicted that 2018 will become a year for re-positioning of long-standing buildings. Office spaces and multi-family apartment buildings are also making a push to incorporate new amenities to attract top tenants. Whereas ten years ago, a well-equipped office or apartment would have been sufficient, today you need to have hyper amenities to push the rents you want to push.
As contractors and investors decide to adopt renovation projects, they must also recall that millennials now make up almost 50% of the workforce, their preferences are largely defining the future of the workplace and commercial real estate. Listening to their demands on ideal work environments is an opportunity that shouldn’t be missed. There are four basic ways millennials are shaping today’s commercial real estate market based on what they value most in their work environment:
- Urbanism: Millennials prefer walkable, mixed-use,
centrally-located, transit-oriented environments. Over all, a building’s
location and design should be intended for a “live-work-play” lifestyle.
Meaning: Young urban professionals live near their workplaces which should
ideally be centrally located around shops, restaurants and entertainment.
- Open-Concept Design: Say so-long to corner offices and
cubicle farms, and welcome to wide open spaces. One major millennial
trademark is the open office; however, this layout has surpassed just a
millennial mindset. Seventy-percent of American employees spend their
working lives in open floor plan offices, according to International
Facility Management. Open offices offer collaboration, communication, and
creativity, all which millennials are demanding. This popular floor plan
additionally offers a lesser known motivator desired by this generation:
competitiveness, according to Cushman & Wakefield. Open offices allow
coworkers to “look over the shoulder” of their colleagues, sparking
friendly competition and a drive to better their work.
- Alternative work spaces: Millennials have dismissed the
idea of the stuffy cubical and replaced it with a variety of
productivity-driven work spaces and creativity-focused collaboration
stations such as on-site cafes, lounges, standing desks, outdoor spaces,
gyms, and community workstations.
- Eco/Tech-Friendly: Millennials are all about
eco-consciousness. One way to attract them is to offer sustainable spaces
and practices, bike racks, and walkability. Technology-based solutions
dovetail nicely with their eco-mindedness and the idea of smart spaces.
One of the latest trends in real estate development has been
to mix things up a bit. Instead of constructing strictly residential buildings,
developers are looking to make projects more versatile by adding retail and
office space. It’s called mixed-use, and it’s being encouraged more often
these days, particularly by local governments and planning agencies, because it
can help improve an area’s livability. Tenants don’t have to drive to the
grocery store or coffee shop. That kind of commercial development can be
located in the building in which they live, or in one just down the
block. Many people would like to see more mixed-use projects in downtown,
but one of the bigger hurdles is a lack of major employers in the city’s urban
core.
The nation’s most vibrant downtown's have either a university or a
major health care facility, which brings activity 24/7. San Diego has
neither. The most common type of development downtown is residential.
Because of the region’s housing crunch, there is high demand, so lenders are
more willing to loan money for such projects. A mixed-use project is considered
riskier because of concern that it won’t get filled. Unlike the housing market,
the retail market is seeing a downward shift. The national retail market is
over saturated, which has led to nearly 6,000 retail closings nationwide in the
last few years. The retail sector is also down double digits in the stock
market.
Although we are seeing a shift in the retail market, Amazon
brings high hopes for transformation and a large shift for the development of
the city. E-commerce giant Amazon is boosting its footprint in
San Diego -- leasing office space in University City with room for
more than 500 employees. The Seattle-based online retailer confirmed this week
that it has signed a lease in the Campus Pointe office park from Alexandria Real
Estate Equities, said Sam Kennedy, corporate communications manager at Amazon,
in an email response to questions.
Amazon is taking nearly 107,000 square feet at 10300 Campus
Point Drive. While Amazon has a small office in Solana Beach, as well as
distribution facilities in the region, this is its first major
office/engineering presence in the county. The deal is among the largest
expansions of an outside, well-known, tech giant into San Diego – exceeding the
60,000 square feet that Google leased last year for a satellite office.
Google’s decision to set up shop in San Diego was linked in part to its
acquisitions of local start-ups, including sensor developer Lumedyne
Technologies. Amazon is planting roots without an acquisition. Is this part of
a larger trend? UC San Diego graduates 10,000 students a year.
If you are
Google or Amazon, you’re looking at that and saying there is going to be a good
local pipeline of talent. They feel that they can grow and find the talent
here. The availability of people from the universities is attractive, and we
have technology clusters in cyber, big data and biotechnology -- which attracts
a lot of people who work in data and analytics – that show there is also
seasoned talent in the region.
San Diego will be among the bidders, with officials planning
to emphasize the region’s strengths in technology workforce and quality of life
to overcome weaknesses such as high housing costs and limited government
incentives. Amazon’s decision to establish a beachhead in Campus Pointe
squarely backs up the argument that we’ll be making in our bid that San Diego
is one of the only cities where you can access both the lifestyle and talented
workforce that companies want and need.
The 2018 Commercial Real Estate outlook is projected to
remain steady and consistent while navigating new obstacles such as Amazon, UC
San Diego’s new campus and renovations of office and industrial space
throughout the city.
Will these changes transform San Diego into one of
America’s most vibrant cities where we can sustain developments such as mix-use
residential buildings? Seasoned professionals have high hopes that San Diego
will continue to expand, whether it be reconstruction, or large corporate and educational
development presence.
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