S.E.C. Real Estate Observer

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Megatrends

In my last article in early March, I asked the rhetorical question of whether the COVID-19 outbreak was a “Black Swan” that would take the world economy into a recession. It is amazing what can happen in three short months. The consensus of economists is that we are headed toward a world recession.

I promised to talk about the book “Megatrends” in this article. In 1982, John Naisbitt released the  bestseller that is still popular today. Most of his predictions have come true. This article will focus on the importance of being a student of economics and political science so we can make better decisions in our chosen field of Commercial Real Estate (CRE). Here are a few of the predictions Naisbitt made in 1982 and the current status of these predictions.

The move away from national economies toward a global one would force the adjustment to a world of interdependent communities.

Since 1982, there has been a huge shift toward corporate globalization, resulting in large free trade zones and other corporate and political alliances. One of the results of this trend in the United States was the shift of jobs to foreign countries, with the devastating impact of entire industries failing. The loss of jobs had a huge negative impact on Commercial Real Estate in some markets. It caused a boom in many other countries, China probably being the largest beneficiary.

This trend slowed down and even was partially reversed because of Trump’s trade wars and attack on the NAFTA agreement and Brexit in Europe. With COVID-19, many predict that jobs will come back to America because of the supply chain issues that have plagued the world during the pandemic. For those of us in CRE, we should be studying this trend and forming opinions on the impact on Commercial Real Estate in the United States.

Eroding hierarchies would give way to social networks as a way of solving community problems.

Keep in mind that Naibitt wrote his book in 1982. The internet was not “invented” by a popular presidential candidate until 1983. Facebook did not launch until 2004. Yet networking has revolutionized entire industries making some companies virtual giants and dismantling other industries. Taxis versus Uber. Hotels versus VRBO. Another S.E.C. Member and I own an office building where the major tenant was a local newspaper owned by the McClatchy Company—I say “was” because they are now in bankruptcy.

The breakup of a unified society into diverse groups of people with different tastes and values.

Social media has enhanced these divisions, resulting in huge marketing opportunities for businesses and some CRE opportunities. Note the trend led by WeWork for collaborative workspace. WeWork leased hundreds of thousands of square feet of office space and then ran into huge financial issues.

Unless you are flipping properties and are in and out quickly, you should be concerned about economic and political factors that can have a direct impact on Commercial Real Estate. I am not arguing that Naisbitt should be studied for the predictions he made in 1982. What I am stressing is the need for all of us to perform our own research—find today’s Naisbitt and form our own opinions of what major trends are going to impact CRE and how can we benefit from these trends, or at least not lose a property because a trend we did not see coming.

The pandemic is the perfect example of an event that is going to impact CRE for many years to come. Perhaps we should be asking about the impact of the following on CRE:

1. Transportation industry. What will be the long-term impact on airlines? The automobile industry has been headed toward the demise of the internal combustion engine. Will the gas station industry adopt to electrified vehicles, or will all these corners need to be repurposed? Will mass transit make our expansive parking lots and parking garages obsolete? Should we develop or invest in transit-oriented developments?
2. What will COVID’s impact be for office buildings with employees working from home? Will employees want to ride elevators? When will the hospitality industry recover, and what will the successful product look like? What will the long-term impact be on our restaurants and the buildings they occupy? With everyone at home ordering on Amazon, what is the negative impact on brick-and-mortar retail and the positive impact on warehouses? In some markets, there has been a run on rental homes at the expense of apartment communities due to social distancing.

I strongly feel that our success in our chosen field of Commercial Real Estate may very well be tied to how we identify these trends and plan for them. I would rather be planning for them than reacting.