What new trends are propelling growth and strength in commercial real estate for 2018 and beyond?
Commercial real estate is changing, a lot, but there is still a good amount of growth expected in this asset class. Especially in blossoming destinations, like Tampa, FL. What’s driving it now?
Affordability & Need for Space
US property prices and rents have been growing strong. In many areas affordability is at crisis point. With generation Z now coming into maturity for forming households and having children, and expectations of significant immigration ahead, the need for housing, and new construction is only going to grow. Land is limited, but there is room to build up with new multifamily and mixed use projects.
America continues to be the world’s number one choice of global investors. Billions of dollars of that capital will continue to be plowed into commercial property projects, and existing income producing properties.
The New Tax Plan
The massive tax overhaul expected to begin going into practice in 2018 could spur more investment in commercial real estate, as well as new migration. Tax breaks which are being cut or substantially stripped down in the new plan include; the mortgage interest deduction, property taxes, state income taxes, and capital gains on personal residences. For many, all that seems left is being able to invest in the IRA or 401k. This is likely to reduce the appeal of homeownership, while encouraging investment through self-directed retirement accounts, and shifting more of the population to states with no income taxes, like FL. Where the people go, there will be more need for commercial infrastructure, like hospitals, offices, gyms, shopping, etc.
Numerous big box stores have announced closures or have consolidated stores in 2017. This is good for the remaining stores, and for more local and boutique stores which are becoming more popular. This has also spurred a reinvention of retail space in America. Smart plazas are coming to life as gathering and entertainment venues, with more experiential shopping. More money is being spent online, but this is complementing brick and mortar retail outlets, and enabling them to be more profitable. In other cases, retail is being repositioned to become mixed use, with live in tenants and condo owners, who are likely to further boost on-site retailers.
An extension, or side effect of this trend is a need for even more distribution centers around the country. Businesses need more local shipping and pick up centers so that they can deliver product faster.
The commercial property industry is changing. Many of these changes are spurring new growth too. It is an exciting time to invest for those that are looking ahead are are getting ahead of these trends and shifts.