No Longer Overlooked & Misunderstood: Evolving Real Estate Demands

September 27 3 min read

Real estate is constantly evolving, with significant changes occurring across office and industrial sectors over the past two years. While change may bring about feelings of uncertainty, history shows that change is merely a conduit for opportunity–a chance to reassess potential and purpose by transforming assets into spaces that fit today’s narrative.

As markets evolve, Stream continues to provide our clients with a competitive advantage through unsurpassed market knowledge and legendary service. Our annual East Region State of the Market event, A Journey Through the Overlooked and Misunderstood, featured industry leaders, and renowned author and top global thinker Malcolm Gladwell, who shared present-day and forward-thinking insights concerning commercial and industrial markets.

The office, reimagined.

For decades, the office was just part of our daily lives—without much thought concerning its functionality or evolution beyond the 8-hour workday. Now, as commercial real estate and the human experience shift, the office has taken center stage in a debate focused on its future.

According to a recent Gallup survey of 140,000 U.S. employees, 59% prefer a hybrid work schedule, citing improved well-being and the desire for flexibility. The survey went on to say that 38% of these employees would like to be in the office up to 3 days per week. Only 8% of participants said they rarely want to visit the office.

While this survey doesn’t account for individual employee circumstances, it does highlight an overlooked component of this debate.

Hybrid work is not in direct competition with the office, but rather, complementary, providing employees greater autonomy and work-life balance.

Consider this.

Austin, Texas, is one of the fastest growing cities in the nation, with its population increasing by 21% over the past decade. Yet, compared to other U.S. metro areas, Austin has seen 60% of its employees return to the office–even though hybrid work arrangements are still in place and have been long before the pandemic.

The reason? The excitement of the city, easy commute, flexible schedules, and enriching in-office experiences have created a vibrant ecosystem in which the office is integral.
As owners and occupiers determine how to move forward, spec suites and ready-to-rent spaces have grown in popularity, along with amenities, health and wellness initiatives, and employee-centric designs.

LinkedIn’s new flagship location is an excellent example of in-person arrangements and flexibility working together, proving the two do not need to be adversaries. Their reconfigured office provides dozens of work settings and conference setups carefully crafted to enrich and inspire without reducing the size of their office footprint.

A race toward industrial.

Across the industrial spectrum, demand remains steady for manufacturing and distribution. According to Yardi Matrix, more than 1.8 billion square feet of industrial space is expected to be added across the U.S. through 2026 as e-commerce and retail continue to drive growth.

What is often misunderstood about this boom is that this significant uptick in activity is challenge-free, which isn’t necessarily accurate:

  • Supply chain disruptions and a lack of space have caused rental rates to increase drastically, with locations such as Nashville and Atlanta seeing increases averaging 25%.
  • A hesitancy toward long-term leases has increased demand for 3PLs, which now account for 60% of the demand for industrial space.
  • Due to multiple market factors, including cost and complexity of build, some product types, such as cold storage, are limited–even though demand is high.
  • There is a shortage of industrial spaces for smaller, more modest occupiers, especially those looking to lease 20,000 – 100,000 square feet.
  • Ecommerce and retail distribution facilities, experiencing bottlenecks with their industrial space, are forgoing form and function for location and availability.

An additional challenge for both office and industrial sectors includes climate change, which could impact regions, labor pools, and prices over the next 35 years. It’s one reason ESG must continue to be at the forefront of development.

In a sea of change, one thing is for sure. Trusted partners and advisors are here to help occupiers and investors navigate the changing landscape of commercial real estate.

Thank you to our sponsors Rand, WMBS, Executive Maintenance, Inc. (EMI), Pritchard, ECS Limited, Realty Ads, and KodeLabs, for their contributions to the value of this event.

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Brian Medricka

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