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7 Bold Commercial Real Estate Predictions
Robin Micheli / CNBC.com / March 24, 2014
Conjuring the future of commercial real estate begins by conjuring our future. How will we work, live, shop or do business? Perhaps no other investment sector is so closely tied to people’s most fundamental needs and behaviors; its evolution, to a large extent, follows ours.
Take it from Peter Linneman of Linneman Associates and the Albert Sussman Emeritus Professor at The Wharton School of Business, who pioneered the academic study of real estate and was named by the National Association of Realtors as one of the 25 most influential people in the business. Commercial real estate, he said, “exists to service the economy and society. That’s all we do.”
Here are seven bold predictions about U.S. commercial real estate in 2039.
1. Most shopping malls will be extinct.
The world of the American shopping mall, said Kenneth Riggs, president and CEO of Real Estate Research Corp., “has been a Darwinian environment since the 1990s with the advent of big-box retail and the ‘Wal-Marting’ of the world—and it will stay that way.” In other words, expect malls to continue their decline due to the rise in e-commerce, with only those consistently producing very strong revenues still doing business in 25 years.
“As the J.C. Penney’s and Sears continue to lose market share to online retailing, you’re going to see more dead malls where the anchors go dark and ultimately are worth only the land they’re built on,” said Tom Bohjalian, executive vice president at Cohen & Steers, which was the first investment company to specialize in listed real estate.
Teardowns may not be the only way to capture value in defunct malls, though, said Rick Fedrizzi, president, CEO and co-founder of the U.S. Green Building Council. He predicts that with repurposing, they’ll be a useful resource when our way of life swings back to revolving around more compact communities. “Established places like shopping malls will become like town centers, where people can come together, where their doctors and day care will be, where they can gather after major devastations.”
2. Brick-and-mortar will go tech—and warehouses will go back to the drawing board.
As consumers increasingly shop on their computers and phones, brick-and-mortar retailers will need to adopt the attitude ‘If you can’t beat ‘em, join ‘em’ in order to survive. Innovation will be key, making use of technology that integrates omnichannel shopping into the physical experience of being in a store and matching the logistical advantages of online merchants.
“People want to look and touch; they want instant gratification, too,” said Maria Sicola, an executive managing director at real estate services firm Cushman & Wakefield, even as selling floors become smaller. “Perhaps there will be the equivalent of a mini warehouse within the store so you can go in the back room and buy what you want.”
Apple is one retailer already using this forward-thinking approach in its stores. Its sales floors feature products that people can touch and try on their own, spending as much time as they’d like. They can buy and take home merchandise if they choose, or they can go home, do further research and buy online—with free overnight shipping. This may be a model other retailers will emulate.
Efficient distribution will be key, and the increasing importance of logistics and automation will impact warehouses across the country, many of which are obsolete even now, lacking up-to-date technology and adequate clearance height and often too remote to accommodate same-day delivery. That will add up to a lot of activity in the industrial sector in coming years, with old warehouses being retrofitted or new ones being built.