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Bankable Predictions: Taking CRE into the Future

Where commercial real estate is heading and what trends will impact the industry? How can commercial real estate prepare in advance to stay ahead during a downturn? As Alexander Graham Bell said, “Before anything else, preparation is the key to success.” Members of the NAIOP National Forums will enjoy a Forums Exclusive event during the Commercial Real Estate Conference, where they’ll learn Lee’s insights and outlooks. We chatted with industry insider Christopher Lee, president and CEO of CEL & Associates, Inc., on what he sees ahead for commercial real estate.

Chris LeeNAIOP: Where commercial real estate is heading, and what are the biggest factors driving it?

Lee: The commercial real estate sector is nearing the end of the currently real estate cycle. While this cycle will likely end in 18-36 months, the unprecedented changes that are accelerating throughout the real estate industry are transformative. From robotics to the Internet of Everything, to demographic and market shifts, to rapidly changing tenant needs and expectations, and deployment of new business strategies. In addition, the shifting capital markets, increasing difficulty in finding “deals that make sense,” and industry consolidation are reshaping, redefining and transforming the commercial real estate industry. Technological advancements, operational and talent megashifts, new asset designs, increasing government regulations and global uncertainty contribute to a confluence of events that are creating the mandatory need for change within real estate organizations nationwide. This perfect storm will create an abundance of opportunities as well as challenges.

A Perfect Storm
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The commercial real estate industry is shifting. Over the next few years, it will be a cornucopia of opportunity for those who embrace change, possess incredible talent and best-in-class leadership, vision and long-range strategic plan, access to capital, valued relationships, brand identity and loyalty in addition to a plan to win.

Real Estate Megashifts
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NAIOP: What trends will impact the industry in the next 12-18 months?

Lee: Over the next 18 months, the most impactful trends affecting the real estate industry will be:

  1. Access to inexpensive debt.
  2. Disruptive technologies.
  3. Market slowdown.
  4. Global and domestic uncertainty.
  5. Job creation [or lack thereof].
  6. Continued offshoring of jobs.
  7. Stagnant household income.
  8. Unprecedented/staggering federal and state debt.
  9. Low workforce participation rate [lowest in 38 years].
  10. A muddle-through economy.

There will be geographic winners and losers. The threat of both cyberattacks and physical terrorism attacks is real and the direction/policies of the new president and her/his administration will be watched closely.

RE Cycle Thumbnail Predictions
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NAIOP: Are we in a period of unprecedented change? Will this pace continue?

Lee: The pace of transformative and disruptive change will likely continue until 2040. The combination of generational shifts, the digital age reaching a plateau, demographic shifts [both market and population] and the connectivity of everything to the internet are nearing the midpoint of cyclical change.

NAIOP: How should developers and investors be preparing their businesses to sustain the inevitable downturn?

Lee: Now is the time to set in motion the strategies, business practices, policies and systems and tactics to weather and prosper during the forthcoming downturn. The actions should include, but not be limited to:

  1. Dramatically increase the level of recurring income.
  2. Lock in long-term debt.
  3. Dispose of non-core assets or unprofitable accounts.
  4. Generate cash flow from operations sufficient to offset 75-100 percent of overhead.
  5. Develop success plans and sustainable governance structures.
  6. Create a 4- to 5-year strategic plan to capitalize on downturn opportunities.
  7. Rebalance one’s portfolio to rebalance/eliminate risk.
  8. Lock in next-generation leaders, stars and producers.
  9. Strengthen one’s brand and solidify a differentiating story.
  10. Secure/strengthen a long-term source[s] of growth capital.
  11. Overcome resistance/reluctance to change.

Plan to join NAIOP for the Commercial Real Estate Conference, September 26-28, in Scottsdale, Arizona. Visit the conference website for the full agenda, and get a preview of the innovative development projects on the pre-conference tours.

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