Trending in CRE – Branching Out

“If you build it, they will come”, great quote, but not necessarily true these days. More and more, commercial real estate is being build-to-suit the customer. Banks, long ago, figured out this concept but now healthcare, higher education, corporate, and e-commerce- are decentralizing. It’s no longer about one location, it’s about new branches.

Meds and Eds Everywhere

Slowly, but steadily the healthcare and higher education industries are expanding. People no longer want just one location option and satellite campuses are becoming popular. As a result of this push away from hospitals, the average price per square foot for ambulatory buildings (including MOBs is close to $300). According to reports, 8.8 million square feet of medical office space will be built this year, meanwhile CoStar says vacancy rates are on the decline. Modern Healthcare says ambulatory services account for 60% of all US hospital revenues, an incentive for healthcare systems to decentralize. Locally, the Children’s Hospital of Pennsylvania (CHOP) is opening 50 CHOP Care Network centers to branch out from its urban campus.
Many university and college master plans involve expanding their presence to where the population is, rather than bringing the students to the campus. Urban universities are quickly becoming the second largest property owners (behind local governments), and are investing in surrounding neighborhoods and building tech centers. As more and more students are opting for the “nontraditional” college experience, schools are purposing commercial real estate to accommodate the change. In the suburbs, some universities are expanding beyond their immediate campus and are leasing space in office buildings or are acquiring sites to hold classes and then lease any vacant space to external tenants. Schools are also trying to re-purpose their older buildings. An estimated $15 Billion dollars annually is spent on construction and renovations on college campuses according to College Planning and Management.

Corporate Branch Locations

The vast majority of jobs are still found outside city centers, mostly as a result of decade’s worth of people leaving cities. Corporate headquarters were lured to the suburbs with promises of sprawling office parks and lower rent prices. However, this trend is changing and highly skilled and high paying jobs in the tech and finance fields are primarily in the heart of the city now. Younger employees, in their 20’s want the urban lifestyle, but those in their late 30’s, prefer the mellow humdrum of the suburbs. Corporations are straddled between attracting the next generation of workers who want the easy city commute, and also appealing to the top tier managers who have settled in the suburbs. As a result, companies are finding themselves leasing space in the city, while still maintaining headquarters in the burbs.

E-commerce Logistics

The promise of delivering a product in 24 hours has spurred a whole new logistical issue for warehouse tenants. While half of all distribution center construction in 2014 happened in the six largest US-based logistic markets, this year’s construction has expanded to secondary markets. In an attempt to fulfill and deliver on time to anywhere in the US, businesses are leasing smaller (500,000 to 750,000 square foot) warehouses in smaller regional hubs. By having several options of warehouse commodities, companies are pushing the speed in which they can deliver products. As e-commerce companies continue to push how quickly they can get a product from point A to point B, there will be new requirements for fulfillment centers.