Gregg Gerken is executive vice president and head of U.S.
commercial real estate at TD Bank. Gerken is responsible for
a $17 billion investment real estate portfolio serving regional
and institutional clients. He has more than 30 years of banking experience, spending more than half of that time in the
real estate industry. He also serves on the executive committee
of the Mortgage Bankers Association. Gerken graduated
from Ohio University in 1982 with a degree in international
business and political science. Reach him
at email@example.com or (212) 299-5705.
The Commercial Property Sector Is in Flux
Pay attention to the emerging market trends to get a jump on the future
By Gregg Gerken
2018. The convergence of brick-and-mortar and online
retail will continue to create major seismic shifts in the
industry. In the past year, brick-and-mortar stores have
closed at a record pace, while online retailers such as
Amazon continue to grow.
Urbanization also has had a big impact on the retail
real estate industry, in both suburban and metro markets.
Within the suburban market, retailers may be at a risk
of having too much brick-and-mortar space, given many
young families are opting to live in urban areas. Retailers
in urban markets are expanding aggressively to meet
the increased demand of the growing population.
Demographic shifts will remain an issue for the
industry as a large number of retiring baby boomers
give way to the wave of millennials starting careers
and buying their first homes. Millennials continue to
seek amenity-based housing within close proximity to
stores, transportation and restaurants, driving demand
for retail space in urban environments .
With job growth increasing for most of 2017, office real
estate space constitutes an expanding market for
investment. One portion of office real estate expansion is
the demand for more office space near entertainment
venues and other amenities. These office buildings are
relying on smaller, flexible workspaces. Co-working
spaces also have become more common as professionals
choose alternative working methods.
New office projects and many existing office buildings
will be constructed or re-purposed as part of mixed-use
developments throughout 2018. A best-in-class example
of this trend is the development of Hudson Yards in
New York City, which will include 18 million square feet
of commercial and residential space, office towers, shops
The commercial real estate industry has displayed continuing healthy signs so far this year. Still, a number of risks and influ- encing factors remain.
For starters, overall activity is declining from the
peak levels the industry experienced in 2015 and
2016. The commercial real estate industry is seeing
less transaction volume and financing opportunities
because of the current valuation and competitive
nature of the market. In addition, given the length of
the economic recovery and the uncertainty of tax and
regulatory reform, banks have become more cautious.
As we get ready to transition into 2018, many are
wondering what the future holds for commercial real
estate lending. Following is an overview of the top
trends across the four major asset classes, including
multifamily, retail, office and industrial. Commercial
mortgage brokers and lenders should pay close attention to these trends to best position themselves and
their clients for the future.
Over the past few years, the multifamily market has
experienced a great deal of lender interest, with
attention on markets such as Austin, Texas; Charlotte,
North Carolina; Atlanta and Dallas. Whether as a result
of wage- and job-growth patterns, the changing priorities among a new generation of households or some
combination of those variables, there continues to be
opportunity for investors in the multifamily market.
The growth trajectory for the multifamily market,
however, is slowing. Consequently, investors and borrowers, as well as the lenders and mortgage brokers
who serve them, should use caution and monitor for
signs of overbuilding.
On the flip side, there is a continuous, growing need
for affordable housing across the country. According
to the U.S. Department of Housing and Urban Development, an estimated 12 million households now pay more
than 50 percent of their annual income for housing — a
ratio more than 30 percent is considered cost burdened.
Why is that? The number of households needing affordable housing has grown and the supply has not kept
pace. In the years ahead, the industry will need to pursue
many unique financing avenues to find a solution.
Consumer spending grew at a 2.8 percent annualized
pace during the second quarter of 2017, according to
the Federal Reserve’s personal consumption expenditures price index. That expansion marks a return of
consumer-spending momentum and bolsters the
overall outlook for economic growth.
Despite this increase, the retail real estate industry has
experienced significant change in recent years, and the
transformation is profound and will continue throughout
sector. There are many benefits to building green,
including improving operational efficiency, potentially
lowering energy costs and meeting building-code
requirements. Tenants place a high demand on green
buildings, because they have a positive impact on
health and productivity.
Consumer-buying behaviors are not only impacting
the retail real estate industry, they also have significant
influence on industrial properties.
Consumers’ need for immediacy and convenience
is driving demand for additional distribution centers
across the country. A majority of retailers and e-commerce
sites are pursuing distribution centers within close
proximity to the biggest U.S. cities.
According to the U.S. Census Bureau , the trajectory
of e-commerce sales will continue to rise, creating a
continued need for industrial real estate.
n n n
Ultimately, macro-economic signs point to a healthy
financial landscape as we transition into 2018. Changing
market trends, however, including global and political
uncertainty, are expected to have a significant impact
on the real estate and business communities going
forward, as well as on commercial mortgage brokers
and lenders dependent on the dynamics of the real
Owners, borrowers, investors and the brokers who
serve them should closely monitor these changes, and
maintain an open dialogue with financing partners to
ensure that strategies can be revised as the market
environment shifts in the coming years. n
“Given the length
of the economic
recovery and the
uncertainty of tax