Commercial Real Estate Investing and the Technological Influence
There are two undeniable realities in the world of real estate investment: the long-standing wealth-building potential of commercial real estate and the rapid transformative effects of technology. But how do these two truths intersect and impact each other?
It is widely recognized that real estate, particularly commercial real estate, has played a significant role in the financial success of numerous millionaires throughout history. However, when it comes to choosing what asset class among commercial real estate to invest in; such as office, retail, industrial, and multifamily, there is one category that stands out from the rest.
As an investor, I have chosen to focus solely on multifamily properties for several reasons, one of which is the influence of technology. There is no denying that technology is changing our economy, people's lives, and the world as a whole at an unprecedented pace. The speed of these changes makes it increasingly challenging to predict where technology will lead us, relying more on speculation than concrete data analysis.
Let's explore how technology is shaping the future of commercial real estate:
Impact on Office Space: Technology has enabled remote work to become more prevalent, with various tools like Think Email, Skype, Zoom, and Podio facilitating virtual collaboration. According to a recent Gallup survey, 43 percent of employed Americans spend some time working remotely, and the number of people working remotely four to five days a week has increased since the Covid-19 pandemic. Working from home offers benefits such as improved employee satisfaction, increased productivity, and reduced costs for employers. With the growing tech industry leading the way in remote work opportunities, the trend of employees working from home is expected to continue, resulting in a decrease in the demand for office space. While office spaces won't disappear entirely, the declining demand will have an impact on pricing and asset valuation.
Impact on Retail Space: Online shopping has become increasingly popular, with 80 percent of Americans now making purchases online, according to a study by Pew Research. E-commerce giants like Amazon and Wayfair have revolutionized the way we shop, offering convenience and a wide range of products. This shift towards online shopping has significant implications for retail real estate. While not all physical retail spaces will become obsolete, the increasing preference for online purchases and the cost savings associated with online retailers will likely lead to a decline in demand for retail spaces.
Impact on Industrial Space: Technological advancements have improved communication and procurement processes, making it easier for businesses to source products and services from overseas at competitive prices. Small businesses can now effortlessly connect with overseas vendors for manufacturing or simple purchasing. Moreover, the rise of virtual assistants and the ability to hire remote workers globally has further contributed to the displacement of industrial real estate. This shift in business operations reduces the need for physical industrial spaces, as manufacturing and office work can be outsourced to virtual assistants and remote teams.
Impact on Multifamily Demand: The rapid pace of change in the world has resulted in a more transient workforce, particularly among the Millennial generation. Millennials tend to change jobs and locations more frequently compared to previous generations, driven by technological advancements. Technology has made it easier to search for job opportunities across the country, apply for them, and interview remotely without leaving one's home state. This increased mobility and transient lifestyle have led to a decrease in demand for home ownership and an increase in residential rental demand, specifically in multifamily properties.
Technology has revolutionized the commercial real estate landscape, with multifamily properties emerging as a favorable investment option. The demand for office and retail spaces is decreasing due to remote work and online shopping trends, while industrial spaces are being displaced by global sourcing and virtual assistants. On the other hand, the transient nature of modern lifestyles and the rise in renting have resulted in increased demand for multifamily properties. With technology continuously evolving, the multifamily market presents significant investment potential that is expected to grow in the future.
