The changing winds of real estate

by AM admin on December 12, 2017

By Byron Carlock, US Real Estate Leader –

Why real estate? I grew up in a small town in rural Arkansas and watched it undergo a fundamental transformation. For more than a century Blytheville’s economy relied heavily on independent family farms. But agricultural deregulation, farm consolidation, and the exodus from rural towns to urban cities profoundly affected the vibrancy of the community. Despite my interest in our family automobile business, the changing landscape of the country drew me to urbanization as I watched cities benefit from these new market dynamics. I wanted to be a part of this new economy and was able to do so in real estate, affiliating myself with the Trammell Crow Company. The real estate industry continues to be a driver of urban evolution and once again the industry is being called to lead the next waves of economic transformation and infrastructure revitalization while tackling social issues such as affordable housing, historical preservation, and neighborhood gentrification while advancing our cities technologically.

As I reflect on our recently held Assets & Wealth 2017 conference in New York, I see parallels between the transformation of Blytheville and what’s going on in the real estate industry. We’re going through several core structural changes on both a micro and macro level, and these were topics of discussion for conference participants.

Changing trends: We are seeing a shift in growth from traditional population centers to cities and regions that previously had been thought of as secondary markets. As the gateway cities become increasingly expensive, populations have looked for alternatives that provide mass transit options into nearby economic centers. The pricing out of millennials in New York, San Francisco, and Washington, for example, has led to population explosions and development booms in Westchester, Oakland, and Northern Virginia. The relocation of the residential population into these areas has also led to the repositioning of businesses to these areas as they try to lure talent.

Growth is also being driven by the differing needs of generations. While retiring boomers are attracted by the amenities, weather, and conveniences offered in Florida, millennials are looking to cities such as Seattle, Austin, and Raleigh-Durham that offer opportunities for job growth and development in the high tech industry.

Chasing yield and reimagining space: While acquisition opportunities remain fully priced, market participants are finding yield by enhancing existing portfolios. Smart landlords are repositioning their assets to meet market demand for different types and styles of space, especially in retail, office, and high density multifamily. Ailing secondary malls are being revived by transforming vacant anchor space into amenity centers, movie theaters, and restaurants. Some malls are even being redeveloped to give them a downtown, city center feeling. With the rise in popularity of space and amenity sharing technology companies such as WeWork, corporate office users are looking for innovative ways to transform existing inventory to attract the top talent and give themselves an advantage in the marketplace.

Meeting expectations: It’s not just landlords being held to a higher standard. Residents now expect municipalities to provide more than just basic services. Enhancing quality of life by providing access to arts, culture, green space, sustainable environments, connectedness via technology, reliable mass transportation, healthcare, security, and education is key to ensuring growth. Municipal leaders increasingly are coming to the realization that the real estate community is the ideal partner for creating and crafting social improvement via smart development. Partnering around issues associated with reducing homelessness, increasing affordable housing, promoting historic preservation, and creating parks and public spaces all have been important factors supporting expansion in the fastest growing markets.

What does this all mean?

Our industry is changing at a pace not seen since the advent of the steel-framed skyscraper. While I’m optimistic about the future of the industry and its continued growth in the current economic cycle, it’s becoming increasingly clear that there will be winners and losers. Those organizations that provide products sought by the new user stand to profit greatly, while those lacking the imagination to keep up may very well find themselves out in the cold.

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