This year, the office market dethroned the other sectors of the commercial real estate industry and took its crown as the sector poised with the most growth.
Businesses saw an increase in job demand, which led them on the hunt for roomier workplaces that were of higher quality than the office spaces they currently filled. Not only did more building owners get creative as they began opening their extra space up to businesses looking for a new place to call their home away from home, but it also inspired an increase in commercial real estate projects.
It is obvious that the growth of the office sector is healthy when you compare the decline of the national vacancy rates with the increase in net absorption.
This increase in development projects is so high that a CoStar report deemed it as a new record peak in office availability. However, this demand for office space now with the rise in commercial development projects has many wondering if this may put a halt in the growth of the office market. Many question whether current investors and building owners will need to prepare for less of a rent increase.
Here are some tips for staying competitive:
Target gateway markets.
Investors are encouraged to look to certain sub-markets surrounding the most popular urban areas as a way to stay competitive with all of this commercial growth. Some areas, such as Los Angeles, are not directly experiencing as much growth as other markets due to restrictive demands on construction. The solution, then, is to focus on areas surrounding that main hub that will flourish as a direct result of spillover from these main points on the map.
Target value-add opportunities.
Instead of planning for a new construction project, investors would see better results if they focus on value-add opportunities for the buildings they already own. To millennials especially, there is a demand for unique work environments that cultivate a more collaborative atmosphere. Because these spaces already exist, leasing prices will be much more affordable compared to those of newly constructed areas.
Target long-term demand.
Commercial real estate is renowned for its cyclical nature. When looking to the future of the office sector, consider putting all of your efforts in what will bring the most long-term value. When doing this, it’s important to research the demographic trends of the area, as well as the area’s ability to harbor enough buildings to support a growing market.