What are the most important factors influencing the commercial real estate industry's growth? These are the trade war between the United States and China, the Iran conflict, the coronavirus outbreak, and the Libyan conflict. Despite these obstacles, the commercial real estate industry is expected to expand in the coming years. The office, multifamily, and student housing sectors are the focus of this article. After that, we'll talk about the future of student housing.
The retail sector has declined over the last decade as the e-commerce boom has reduced foot traffic. Nonetheless, some developers are considering mall redevelopment. According to a National Association of Realtors (NAR) survey, 39 percent of investors intend to redevelop malls for retail, office, or a combination of the two. Another 25% intend to convert shopping malls into industrial and fulfillment centers.
The current retail property market environment is favorable for expansion. Despite the economic slowdown, investors are concentrating their funds in this sector due to its high yields. Furthermore, retailers are attempting to rebrand their stores in order to appeal to younger generations. In other words, the retail sector will improve in 2018.
Office space is still in high demand in commercial real estate. The office sector is in the midst of a global recovery, with new construction and acquisitions fueling occupancy and rental growth. Globally, the office sector has recovered strongly, with an occupancy rate of nearly 80% expected by 2021. The rental growth in the office sector is slowing, but the third quarter of 2021 was positive.
The performance of the office sector is a little uncertain, with rent growth slowing as tenants re-evaluate how to use their space. As a result, in order to remain competitive, office owners will need to invest significantly in new buildings. Office property is typically divided into two types: older, inefficient products and newer products with modern design, air ventilation, and tenant amenities. The net effective rent is rarely disclosed in new lease notifications.
According to the National Association of Home Builders, the multifamily sector will finish above pre-pandemic levels in 2021 and set a record in 2022. While the housing market in the United States remains undersupplied, the growing number of new households is driving up demand for apartments. Multifamily supply will be nearly equal to demand by 2022, resulting in a 6.4 percent increase in net effective rents.
With a national growth rate of 2.8 percent, and slightly higher in some metros, demand for multifamily rental units is expected to remain strong. Professional services, technology, leisure and hospitality, and logistics and transportation are expected to grow in those metros. These new jobs, combined with the expanding multifamily market, will result in a demand for an additional 400,000 to 700,000 units by 2022.
Over the next five years, the commercial real estate market for student housing is expected to grow by a whopping 9.7 percent. According to the National Multifamily Housing Council (NMHC), the number of student housing beds is expected to increase by 1.1 percent per year by 2031. With the exception of a few private colleges, demand is expected to be concentrated at public four-year universities. This, however, does not necessarily imply that rents will skyrocket.
Developers are also interested in the student housing industry. Developers have recognized that this demographic has a high demand for affordable housing and have responded by including a variety of amenities. Adelman, a developer, capitalized on this trendsetting dynamic in 1997 by adding a high-speed internet package to his Campus Apartments. Fitness and sports-oriented common areas are becoming increasingly popular, and square footage is increasing. Green features are an excellent way to attract new students.
The life sciences commercial real estate market is rapidly expanding as a result of the influx of bio and pharma companies. Historically, these companies have outsourced their R&D and manufacturing to other countries. However, supply chain issues have chastised these businesses. In response, some are increasing domestic manufacturing capacity or investigating it. But which biotech or pharmaceutical firm will be the next big thing? What should you know about this rapidly expanding market?
San Diego, for example, has a thriving life sciences industry that ranks third in size only to San Francisco and Boston. Investment volume has recently reached new highs, reaching $2 billion in 24 months. And it is expected to rise further. Traditional life sciences activity in San Diego is concentrated in the Torrey Pines and University Town Center submarkets, though downtown San Diego has recently attracted life science developers. Furthermore, new facilities must be built quickly, creating a demand for life science commercial real estate.