Speaker predicts transformational shifts in commercial real estate
America is moving to a rental-based society. In the not-too-distant future, grocery stores will become the place to hang out, offering a hub of essential services. And large companies such as Microsoft will buy units for rent based on consumption, as opposed to square feet, from national landlords with smaller office spaces available to workers 24/7.
Those were some of the predictions shared by futurist Christopher Lee Tuesday during the sixth annual Land Forum sponsored by Commonwealth Commercial, a Henrico-County based commercial real estate services firm.
More than 200 people came to The Westin hotel in Henrico to hear Lee's keynote speech. He is the CEO of CEL & Associates Inc., a Los Angeles-based real estate advisory and consulting firm and also the author of the 2012 book, “Transformational Leadership in the New Age of Real Estate.”
Transformational change is coming, he said, fueled by several major shifts, including the retirement of the baby boomers and the emergence of the millennial generation – a generation that loves technology, collaboration, streamlined offices and telecommuting.
Currently, Lee said American’s commercial real estate industry experiences 10-year cycles, and it’s about three years into a 10-year-year cycle that he described as “the age of consequence and restructuring.” As the economy continues to pick up steam following the Great Recession in 2007-09, portfolios are being sold, he said, and the industry is seeing consolidation and the reallocation of capital. He expects this cycle to end in 2018.
By the next big cycle, starting in 2023, more members of the millennial generation will be in charge, and the country will see an age of globalization and knowledge, predicted Lee. “We’ll use technology more efficiently. We’ll be more dynamic and interactive than we are today.”
Another big trend, in his opinion, is the emergence of a rental-based society. “Young people are coming out of college, and they’re renting,” he said. Plus, they are delaying marriage longer, and many will have smaller families than their parents.
American’s home ownership rate has fallen from 68 to about 64 percent, Lee said. “Zip cars, Uber … all these things are rentals.”
By 2016, 43 percent of the country’s workforce will telecommute, he said, and that will change the demand for office space. In addition, he predicts fewer face-to-face meetings, with more business being transacted via Skype and other virtual means. With fewer workers spending their time at the office, employers will seek smaller spaces that are available 24/7. “They are paying rent 24/7,” Lee said.
He envisions shorter leases, online lease auctions and lease portability, where people and companies could use their allotment of rental units at various places around the country.
There will even be opportunities for leasing and auctions in the ocean, he said, calling the oceans “an untapped resource.”
According to Lee, retail is the sector changing faster than any other asset class. Nationwide, online sales have reached nearly $400 billion a year, a trend that he expects to continue, reducing the need for brick and mortar stores.
On the other hand, he expects grocery-anchored retail to thrive, with stores offering education, banking, personal services and social interactive venues. “They will become America’s hangout. They will be a place where Americans go to get plenty things done.”
He also expects the hospitality industry to do well as it acquires multifamily properties, which have been solid homeruns in terms for growth for the commercial real estate industry in recent years.
The self storage industry also will do well with 66 million new square feet of storage needed, Lee said, as more companies like Amazon move into new markets such as groceries and need warehouse space.
He also predicts that the number of real estate firms in existence today could shrink by 25 to 30 percent within a decade. “The future has arrived. We have to change if we are going to be successful in the future,” he said.
A panel of local speakers that followed Lee didn’t’ agree with all of his predictions. J. Ryan Lingerfelt, president of Lingerfelt Commonwealth Partners in Henrico, says he thinks young people, after marrying and starting a family, will still want a home in the suburbs.
While younger people may want the schools in the suburbs, Lee said, older boomers are moving back into the cities to be close to amenities such as restaurants and entertainment.
Brad Sauer, president of Sauer Properties in Richmond, expects the concept of urban mixed-use projects to remain popular. “The concept of having a place where people can live, work, shop, play, drink, is a powerful concept,” he said. “If you can find a site in the city limits for mixed use, you will be successful.”
Local professionals said they already are seeing demand for smaller, more efficient office spaces. However, they don’t see the Richmond area getting a mass transit system anytime soon, an amenity Lee said has jumpstarted new commercial development in other cities around the country.