Cheaper tech, fiber, co-working and e-commerce all shaping commercial real estate sector
Reduced costs of technological innovation, tenant demand for digital connectivity, an increase in co-working environments and expansion in digitized warehouses are all rapidly transforming the value proposition and landscape in the commercial real estate marketplace—enabling owners to increase their bottom line.
“Whether its LED lights or fiber connectivity building owners must be able to see a definite return on these investments. Corporate-owned building developers look at tech as giving the building more cache, but multi-tenanted building owners consider one question: What is the return on investment of this piece on technology? If they don’t have an immediate payoff it’s less likely to lead to adoption,” said Thomas Bisacquino, president and CEO of NAIOP in an interview with In-Building Tech.
The reduction in costs of technology like LED lights and internet of things sensors are driving tech adoption in the CRE marketplace by making technology accessible to both small and large building owner.
“Things that were leading edge seven to eight years ago are becoming commonplace. It’s the same thing we saw happening with low VOC paints and recycled carpets in the green building space. If it’s going to save us money on power and costs of course our members are going to do it,” Bisacquino said.
Commerical real estate owners increase ROI through fiber connectivity
Enterprise headquarters, tech firms and security clients are demanding more bandwidth and owners who can offer higher-grade connectivity can charge higher rents. A recent study found buildings with optical fiber connectivity achieved 28% higher rents compared with those without.
“From the tenant-side. smartphones and the cloud-based platforms are making connectivity and bandwidth critical to running today’s businesses and more tenants are requiring it,” Bisacquino said.
Co-working tenants are profitable for commercial real estate building owners
Today, both enterprises and smaller businesses are turning to global co-working spaces like WeWork rather than investing upfront to establish a dedicated office space and are making co-working operators potential tenants for commercial building owners.
While the demand for traditional office spaces is not likely to be disrupted by WeWork and other co-working spaces, Bisacquino says it’s an opportunity for building owners to lease a portion of their building to co-working operators that are willing to pay premium prices.
“More building owners are leasing a portion of their multi-level office spaces to co-working operators who are often willing to pay a premium for higher connectivity, common area amenities,” said Bisacquino.
A recent study by NAIOP found that vibrant office settings are becoming more sought after, especially by tenants in the high-tech and knowledge-based sectors. The research found that building owners that create communal spaces and game areas and feature programming such as happy hours and health wellness activities are drawing more tenants to their suites.
E-commerce fuels demand for industrial locations
The boom in e-commerce has jumpstarted demand for micro distribution centers and warehouses spaces. Last year developers added 12%, or 216 million square feet, of new warehouse space in the U.S. market compared with 2016, according to data compiled by CBRE.
“Both technology and innovation are driving this change in the marketplace. We have a large percent of our members that are benefitting from the increase in commerce. Speed to market and push is to get the product to consumers as soon as possible is creating a demand for locations well suited to place micro-distribution centers” said Bisacquino.
As e-commerce companies compete to provide shorter delivery timelines many older buildings such as banks are now being sought after by logistics providers to serve micro-distribution centers due to their proximity to the consumer, said Bisacquino.