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BLOG | 3 Ways Optionality Will Impact the CRE Market in 2017

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3 Ways Optionality Will Impact the CRE Market in 2017

MN-AO646_TECHSP_P_20170426105057

CRE buyers, tenants, and investors are looking for space that has more than one use; optionality. It offers flexibility, multiple revenue streams, and fits the changing work and life habits of a growing portion of Americans.

The Urban Land Institute released its annual Emerging Trends in Real Estate Report for 2017 recently. Optionality made the list of emerging trends as one of the major game changers we can expect in the CRE market this year. Here are 3 ways optionality will impact CRE investors and the multi-family sector specifically.

 

#1: More Flexibility in Leasing Options

Physical retail space has had a hard time competing with e-commerce, if you need proof here is a list of 2017 retail store closings. Those spaces are losing tenants by the thousands. For landlords and investors that built the space on the back of retail alone, it means big losses unless more tenants can fill the spaces that will be left vacant in the coming months.

Optionality allows for the same space to be used for multiple purposes. You may own a building or retail space that includes medical offices, a grocery store, a bank, and retail shops. If one of your shops goes down, your asset is diversified in a way that will allow you to weather the storm if and when the economy shifts.

Additionally, the move to remote work and new office sharing innovations are creating the need for more flexible leasing options. This is where multi-family and multi-use investors will have to provide leasing options to tenants and buyers that work with these new work and lifestyle habits.

 

#2: Growing Demand for Multi-family

According to the ULI report, developers are crafting new projects with optionality in mind in order to attract tenants from the two largest generational buyer pools. For instance, millennials that began the urban lifestyle rebirth – demanding living space closer to city centers – are now looking for multifamily space that includes retail, gyms, and restaurants.

This trend cited by the report is for more multi-use multi-family space. That demand has spread to the boomer generation as well. Just like retailers are diversifying their properties, millennials and boomers want more convenience in their living environment with everything on-site or within walking distance.

 

#3: Faster Market Response to Buyer and Tenant Appetite

Smart investors are looking for projects that involve multi-use multi-family CRE that can satisfy a rapidly changing CRE market. Optionality gives investors and landlords the ability to respond to these changes more rapidly.

Right now, co-working is the trend and has even made its way into the Jackson, Mississippi market with start up concepts Mantle and Coalesce. If that changes, investors want properties that can change with the times. Optionality is the best way to strategically invest in CRE that offers a way to stay in the black despite disruptions to the economy or to the market. Another area of change that is adding even more optionality to multi-family is what is called “co-living” where tenants in a residential complex share certain parts of a house. You have your own apartment but share a kitchen. This makes units more affordable as rent prices continue to keep pace with high demand in the multi-family sector.

In today’s rapidly changing environment, now may be a good time to assess what you own and see how well your Commercial Real Estate is poised to perform in next CRE lifecycle. Does your property have optionality or do you want to make sure you are investing in projects that do? Reach out to one of our Commercial Real Estate Advisors and we guide you through the Muddy Waters of Mississippi.

 

By Micah McCullough, CCIM

Vice President | NAI UCR Properties

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