The changing demographics of the United States workforce have been one of the major drivers of these developments over the last decade. The Baby Boomer generation is aging, which will have an impact on commercial real estate demand as the working-age population base shrinks. Meanwhile, the Millennial generation is the largest in the labor force in the United States and has a significant impact on workplace trends, housing, and work-life balance. These trends are likely to continue in the coming years.
Workplace trends are changing as manufacturing plants close around the world. Companies are becoming more adaptable, providing more flexible schedules and remote working options to their employees. Furthermore, workplaces are becoming more collaborative and creative, which aids in attracting and retaining talent. Companies are also increasing their amenity offerings, such as coffee shops and kitchens, to make employees feel more at ease and engaged. Workplaces that are designed with these trends in mind are more likely to attract new tenants.
Employers are shifting away from traditional gateway markets as hybrid work allows for greater workplace flexibility. The "flight to quality" that preceded the pandemic is an ongoing phenomenon. Employers are also looking for adaptable workspaces to meet the needs of a thriving hybrid workforce. Workplace design trends will continue to shape the commercial real estate industry's talent landscape. More quants will enter the market to address inefficiencies in CRE data. CRE executives are particularly interested in workplace design trends.
Cost reduction is a growing priority for many real estate professionals, and the need to cut costs is more apparent than ever. With the rise of remote work, fluctuating consumer demand, and an uncertain future, the commercial real estate industry is under pressure to find new ways to maximize profits while minimizing costs. To combat this issue, building managers and opportunistic investors are increasing efficiency. Furthermore, cost-cutting initiatives are becoming more common than ever before, and technology is playing an important role in increasing efficiency and lowering costs.
Consolidating multiple businesses within the same geographical or market is one strategy for lowering operating costs. For example, a company with two separate call centers may merge to form a single one. Alternatively, two offices could merge, resulting in fewer types of space. Cost-cutting strategies are also being used in mergers and acquisitions, which require organizations to set realistic impairment reserves for potential real estate losses. This strategy has numerous benefits. Finally, it will assist an organization in cutting costs while improving its bottom line.
Large initial investments may be prohibitively expensive for many investors. However, with the increased availability of leverage, commercial real estate investing is becoming more appealing. While it is critical to understand the risks involved, using leverage in commercial real estate can provide increased market access. Leverage is commonly expressed as a Loan to Value Ratio, which represents the loan as a percentage of the asset's market value. The use of leverage alters the asset's ownership structure, which is referred to as the capital stack. It may change the asset's repayment priority and risk/return profile.
Overuse of leverage was a major cause of failed deals during the financial crisis. In today's market, however, even conservative investors recognize the benefits of leverage. Broadmark Realty Capital, a national commercial real estate finance firm, offers advice to help you make the best investment decisions for your specific goals and risk tolerance. You can discuss leveraging with a qualified commercial real estate finance professional to maximize your investment portfolio.
While the full effects of COVID-19 have yet to be seen, the widespread changes and exposures that it has caused for the commercial real estate market are certainly worth monitoring. While more information is needed to fully assess its impact, it has already created a number of opportunities for investors in the industrial, data center, and life sciences sectors. Some of these opportunities are listed below, along with how they may affect your business.
The global financial crisis has far less of an impact on commercial real estate markets than the COVID-19 pandemic. While the global financial crisis was primarily responsible for the loss of credit and liquidity, this pandemic has a direct impact on the demand for space. The epidemic's impact is far-reaching, with direct consequences for supply chains, social distancing, and employment. Not to mention the loss of consumer trust.