3 BIG Trends Building Through 2016

3 BIG Trends Building Through 2016

SD NYE 3 trends

Trends are much like waves – the only way to catch one is to get in front of it!

2016 is already here in many respects – and many of the trends we will see continue through 2016 actually started as ripples in 2014 but will continue to grow into full size waves that will affect the commercial real estate market. Time to get out your favorite board and be ready for more growth!

What does the Panama Canal have to do with it?

WAVE 1 – If you didn’t catch this starting in 2014, there has been a major expansion of the Panama Canal which will allow larger ships through, and lower costs for everything from retail to technology. The BIG winner is E-Commerce which continues to increase along with Mobile commerce. M-commerce is still in its infancy but it is increasing fast. As a result, retailers are reducing their store footprint size and inventory amount,  and in some cases offering showrooms for customers to browse and order their products for shipment directly to their home!

This rise of E and M commerce leads us right into the next wave of the set.

WAVE 2 – Industrial vacancies are at historic lows and much of the available space is terribly outdated for tech sector and small/light industrial. The market is starving for modern warehouse and distribution facilities! The growth of light industrial users, most in e-commerce are focusing their location on proximity to the metro population core. The closer the better!

As the revival of urban living across the U.S. strengthens, we’re seeing light industrial tenants place emphasis on locations that have the ability to meet consumer demand for same-day and next-day delivery by private services, or by company owned trucks. 2016 will be the year that smaller, lighter, and greener industrial moves much closer to urban centers.

Investors should focus on buying and remodeling outdated strip-malls, warehouse space, and older heavy industrial – the closer to urban cores the better! Multifamily projects built into, and ar these spaces can see a huge return on investment in the future.

WAVE 3 – Forget going BIG, 2016 will be the year of going small!

A considerable gap has developed between returns on large shopping and office centers compared to small centers. Cap rates for neighborhood centers have averaged 7% and an even higher at 7.5% for strip centers near urban cores, and the cap rate for larger malls has dropped to the 5’s.

The death of larger malls is a trend that started in the early 2000’s and makes a very interesting read – here is the NY Times article linked below.


2016 will be a year that proves that small centers is where the growth is at. Neighborhood and strip centers have logged 17 million square feet of absorption over the last four quarters, the highest in seven years and more than any retail type.

The “going small” trend will result in an increasing number of large anchor and big box spaces being remade into smaller footprints and mixed with multifamily residential, or small multi-anchors together. Forget the days of a single anchor store holding the attention of an entire mall.

SUMMARY – Strip malls rehabbed for modern tech use, this will include local medical, local pharmacy, small restaurants, (especially fast upscale casual – a new growing trend among millennials that want a fast high quality meal); niche grocery, appointment reserved fitness centers, locally produced fashion and expect a big growth in re-purposed apparel. Investing in small commercial close to urban cores is where the money will be in the future. Rising E and M commerce are looking for modern space close to urban centers.

Best luck in 2016!



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