What are the most important factors influencing the growth of the commercial real estate industry? These are the US-China trade conflict, the Iran conflict, the coronavirus outbreak, and the Libyan conflict. But even with these challenges, the commercial real estate industry is expected to grow in the coming years. This article focuses on the office, multifamily, and student housing sectors. Then, we'll touch on the future of student housing.
The retail sector has experienced a decline over the past decade as the e-commerce boom dwindled foot traffic. Nonetheless, some developers are considering redeveloping malls. According to a survey by the National Association of Realtors (NAR), 39% of investors plan to redevelop malls for retail, office, or a combination of both. Another 25% plan to convert malls into industrial and fulfillment centers. The current market environment for retail property is ripe for growth. Despite the economic slowdown, investors are focusing their funds on this sector, due to its high-yielding returns. Moreover, retailers are looking to rebrand their stores to appeal to younger generations. In other words, the retail sector will experience a rebound in 2018. Office space continues to be a hot commodity in commercial real estate. The office sector is experiencing a global recovery phase, with new construction and acquisitions driving occupancy growth and rental growth. Globally, the office sector has seen a strong recovery, with an occupancy rate of nearly 80% expected by 2021. The office sector's rental growth is slowing, but the third quarter of 2021 was positive. The office sector's performance is a little bit uncertain, with rent growth reducing as tenants re-evaluate how to use their space. Consequently, office owners will need to invest significant capital into new buildings in order to remain competitive. Office property is typically segmented into two types, one of which is an older, inefficient product and the other with modern design, air ventilation, and tenant amenities. New lease notifications rarely disclose the net effective rent. The multifamily sector is poised to finish above pre-pandemic levels in 2021 and reach a record in 2022, according to the National Association of Home Builders. While the U.S. housing market remains underproduced, the rising number of new households is catalyzing demand for apartments. By 2022, multifamily supply will be nearly the same as demand, resulting in a 6.4% increase in net effective rents. The demand for multifamily rental units is expected to remain robust, with a national growth rate of 2.8 percent, and slightly higher in some metros. Those metros are projected to see job growth in professional services, technology, leisure and hospitality, and logistics and transportation. Those jobs, combined with the growing multifamily market, will create demand for an additional 400,000 to 700,000 units in 2022. The commercial real estate market for student housing is anticipated to grow by a whopping 9.7% over the next five years. According to the National Multifamily Housing Council (NMHC), the number of beds in student housing is expected to rise by about 1.1 percent annually by 2031. Demand is expected to be most concentrated at public four-year universities, with the exception of a few private colleges. However, this doesn't necessarily mean that rents will skyrocket. The student housing industry is also a hot property for developers. Developers have recognized that this demographic has a high need for affordable housing, so they have adapted by adding a wide range of amenities. In 1997, developer Adelman capitalized on this trendsetting dynamic by adding a full-speed internet package to his Campus Apartments. Today, fitness and sports-oriented common areas are becoming popular, and square footage is soaring. Green features are a great way to appeal to new students. The life sciences commercial real estate market is growing fast, and this is due to the influx of bio and pharma companies. Traditionally, these companies have outsourced their R&D and manufacturing overseas. However, supply chain issues have frustrated these companies. In response, some are adding domestic manufacturing capacity or looking into it. But which bio or pharma company will be the next big thing? What do you need to know about this rapidly growing market? For example, San Diego has a strong life sciences industry, second only to San Francisco and Boston in size. Investment volume has reached record highs recently, reaching $2 billion in 24 months. And it is expected to continue to rise. Traditional life sciences activity in San Diego is concentrated in the Torrey Pines and University Town Center submarkets, although life science developers have recently targeted downtown San Diego. In addition, new facilities need to be constructed fast, which creates a demand for life science commercial real estate.
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