Notable 2014 REIT Trends That Will Continue into the New Year

By Stuart Eisenberg, Partner & RE Practice Leader, BDO USA, L.L.P.

Stuart Eisenberg

This year was active for the commercial real estate industry. There were significant deals, better availability of equity and financing, and continued demand. With the stage set for an even brighter 2015, what are those notable 2014 REIT trends that will continue to pave the way forward for a promising New Year? The following are our top three.

1. Gateway Cities, Safe Bet for Foreign Investors: The gateway cities, which include New York, Boston, San Francisco and Los Angeles among others, are where the money is, and real estate prices reflect that. These markets are attracting foreign investors and will continue into the New Year. Why? Gateway cities are highly liquid markets and offer investments that investors feel comfortable in pursuing and allocating money towards. This notion is reinforced by the fact that more than 685 U.S. assets were sold to foreign buyers, with 21.3 percent of the investment taking place in New York City, by the end of the third quarter of this year. While this trend is set to continue into and throughout 2015, there will also be an increasing interest in secondary markets. With high demand and lower availability in gateway markets, investors will continue to seek out alternative options found in these secondary markets that feature a larger selection of well-positioned assets.

2. Demand Continues for Mixed-Use Real Estate: The dynamics of developing space in which retail, office and residential all feed off one another appeals to a wide range of market participants and makes work, live and play environments a nationwide trend that will live on into 2015. Beyond the convenience they afford residents, these mixed-use developments are also beneficial to cities because they create jobs and opportunities. In fact, many localities are offering favorable tax treatment for this kind of development. A notable example is the redevelopment of the former Alcatel Lucent corporate campus in Holmdel, N.J., which will be transformed into a destination community that includes a health and wellness center, skilled nursing facility and assisted living center, a hotel, restaurants and shopping, spa, office spaces and a 20,000-square-foot public library. There will also be recreation space and luxury homes. A strong factor driving the ongoing demand for this type of community is ageing baby boomers and empty nesters find this convenient living desirable as they transition out of single family homes and into the next phase of their lives.

3.      Despite E-commerce Boom, Brick-and-Mortar Retail Remains Relevant: While the brick-and-mortar retail sector continues to grapple with a slow recovery in sales and competition from e-commerce, it will remain relevant and continue the resurgence it started this year. Why? Brands are catering to customers’ shifting preferences and desire for convenience. Many companies are maintaining their brick-and-mortar locations to offer shoppers the option to buy online, but pick up in stores, as well as for more traditional customers who favor an in-store shopping experience. Testament to the relevance of brick-and-mortar locations is the move by e-commerce giant, Amazon to open a store in the middle of Manhattan on 34^th St., near the Empire State Building. It would be the company’s first brick-and-mortar in its 20-year history and an experiment to provide the type of face-to-face experience found at traditional retailers that customers still appreciate.

What are your top 2014 trends? Do you think they’ll continue into 2015? Share your thoughts in the comments section below.