With the first half of the year behind us, it is time to look ahead to what is next for the real estate market. To that end, the Counselors of Real Estate (CRE) recently presented its annual list of top ten issues affecting commercial real estate: 

Short-Term Issues:

• Interest Rates and the Economy;

• Politics and Political Uncertainty;

• Housing Affordability;

• Generational Change/Demographics; and

• E-Commerce & Logistics.

Longer-Term Issues:

• Infrastructure;

• Disruptive Technology;

• Natural Disasters & Climate Change;

• Immigration; and

• Energy & Water.

The CRE is a group of seasoned, highly skilled real estate professionals and advisors, committed to providing intelligent, unbiased advice to help their clients achieve their best results. My partner David Connolly and I are proud to serve on the board of the Boston Chapter, which functions like a “think tank” on important real estate issues affecting the Greater Boston area.

Given the current economic and political climate, there are many factors that will impact New England area business leaders’ decisions today as well as their longer term planning. In particular, we feel that particular interest should be paid to:

Generational Change/Demographics 
The Greater Boston area is a unique and exciting melting pot of the four key demographic groups – millennials; aging baby boomers; Gen X (born between the mid-1960s and the early 1980s) and Gen Z (born between 1995 and 2010). We are seeing drastic changes in both the workplace (both location and space utilization) and housing (student housing, single family and multi-family). Co-working spaces are becoming much more prevalent and Boston has seen a recent explosion of high rent, full amenity, high rise apartment buildings. Boomers are moving back to the city and millennials are not leaving (yet!).

E-Commerce & Logistics
With online sales representing 9.5% of all retail sales (and growing), companies are re-thinking their distribution channels and logistics. This interesting intersection of retail with industrial is red hot in the Greater Boston area. Amazon is hiring individual drivers (Amazon Flex) and small businesses (Amazon Delivery Service Partners) to assist with merchandise deliveries and logistics. Previously obsolete industrial and warehouse properties are experiencing a rebirth as “last mile” distribution and storage facilities. Learn more about this trend here.

E-commerce is also forcing a readjustment in bricks and mortar retail. Adaptive re-use is happening on an accelerated basis. Mixed use projects offering a variety of authentic experiences are on the rise. Health oriented projects are also in demand. Amazon, the most dominant online retailer, recently bought Whole Foods. Walmart is looking to acquire hospitals. Smaller online retailers are tracking where the majority of their sales come from and are opening strategically located bricks and mortar stores. Pop up stores are gaining popularity and prominence. Traditional notions of CAM cost sharing are being reinvented. We are experiencing a period of dramatic and exciting change. Retail gloominess has been replaced with mixed and new use optimism.

Interest Rates and the Economy
The Boston economy has been humming along for quite a while now. Most predictions of the next recession are not until late 2019/early 2020. A spike in interest rates could change that. As interest rates rise, values of both commercial and residential properties are held in check. Supply generally increases and demand decreases. So far, the modest increases in interest rates we have seen in the first half of 2018 have not dampened enthusiasm for investment and living in Boston. Unemployment is near historic lows. Real wage growth for all but the most wealthy has stagnated. As noted in the CRE Report, real wages for the middle class have risen only 3.5% since 1979 while wages for top earners has risen 24%. The economy is now strong enough that people are again beginning to change jobs more frequently and with more confidence in search of high wages. Impacts to employers and business owners are just around the corner.

It’s an exciting time to be involved with real estate in the Greater Boston area. Yes, some traditional retailers continue to struggle, but the negative “death of the mall” talk has been replaced by creative new approaches coupled with an authentic can-do attitude. If you are not changing to meet consumer needs and economic trends, then you are at risk of getting knocked out of the game.

John Sokul, is a partner at Hinckley Allen and the firm’s real estate practice leader, Boston, Mass.