The SR/A team is keen on keeping an eye on various publications to analyze the undercurrents and anticipate trends for the foreseeable future. As 2018 is underway, we see some interesting tendencies, not all favorable to the design industry, but interesting nonetheless.
Office Buildings Are Coming Alive
It has been several years that the vacancy rate in the office buildings is higher than commercial developers would like, with no predictable change in the short term. So, we are now seeing the old blank, impersonal and empty buildings being reinvented. Landlords are using the successful program of the multifamily industry to revamp typically dreary office buildings. Core amenities are being added to serve the entire building (gyms, pools, roof tops or terraces, courtyards, refreshment centers, coffee bars, game rooms, etc). Or the amenities are added on the remaining empty floors, while the available square footage around is being divided to accommodate smaller enterprises and startups. For years, quality of life amenities have been utilized in living environments as a sales tool to attract millennials. Having been a part of this successful approach, SR/A is excited to see that commercial office developers and owners are waking up and integrating these same types of amenities into the work environment.
Urban Self-Storage Units Are Cash Cows
Another direction landlords are finding attractive is to reinvent their older, class B and C office buildings, is to transform them into self-storage units. Minimal investment, minimal headache, maximum return. In fact, storage net generating income is up to above 12% in some case. Not to mention that with the new urban living units being designed smaller and smaller, the self-storage annex is recession proof, in other words, a steady investment. Some of those older office buildings are also being converted to hotels and multifamily projects. Conversions are not new to SR/A, as we have been part of revamping many projects, and we look forward to sharing our know-how with landlords.
Industrial Development To Become Appealing Investment
Multifamily projects have long been considered the best real estate investment in the DMV but this year we are seeing the industrial development competing for the 1st place in term of ROI. It makes sense when you consider how many multifamily units have been delivered in the last few years, and how difficult and expensive it is to find urban land on which to build a 200-unit project. A less obvious point is that technology-based industries such as e-commerce and distribution centers are generating a lot more demand for large industrial buildings. Warehousing is changing with the height increase of the automated handling of the packages. Cold and safe storage and data centers are on the rise and demand is only starting. We can expect it to grow exponentially before the trend shifts, making those industrial buildings a steady and safe investment.
Opportunity Zones Program
Born from the recent Tax Cuts and Jobs Act, this provision allows for the raising of capital in communities said to be distressed and therefore qualify as “opportunity zones”. It is designed to compensate for the expected rise of the interest rate, which will make investing in areas of poor economy much harder, and give tax incentives to developers investing in these “opportunity zones.” Governors are now designating these areas within their state. Mostly likely these zones will be located at the corner of rural and suburban, with limited urban. Investors will be able to raise capital through the special opportunity fund and receive as much as 15% tax break on the capital gains. This will include commercial real estate, manufacturing, infrastructure and businesses. However, this is a new program in its early stages and we’ll have to wait and see how it develops and grows.
Sabine Roy is the President and CEO of SR/A Interior Architecture and Design. Sabine and her husband, Sean Saidi, Principal at SR/A, reside in Maryland with their reclusive cat Phisy and their gregarious dog Margot.