Boom, Boom, Boom—What Drives the Commercial Real Estate Economy Today

 

By Mark Fleming

“It ain’t what you don’t know that gets you into trouble.
It’s what you know for sure that just ain’t so.” - Mark Twain

The commercial real estate market has, for the most part, been driven by the overall health of the economy. As aggregate economic demand surges, so does demand for office, retail, hotel, and industrial real estate.. Even multifamily real estate demand, driven by household formation and the the ease with which owned housing can be substituted for multifamily rental housing, has been driven by the economy for the last two decades. 

But, is the cyclical link between commercial real estate markets and economic performance still  an accurate model? Or are the demographic influences of Millennials, the Echo-Boomers, and Baby Boomers causing fundamental changes in the behavior of commercial real estate markets? The preferences of these generational cohorts for urban living, convenient access to social amenities, and the specific types of housing desired are influencing all real estate markets in meaningful ways, separate from just economic fundamentals.

Yet, these economic influences are not to be forgotten. There is no doubt that the economic recovery has helped to power commercial real estate growth to its recent boom years. But, how different generations want to shop, play and live are increasingly important demographic influences that need to be considered when looking at commercial real estate trends.

As a real estate economist, I am frequently surprised by how much time I spend evaluating demographic trends. They do say “timing is everything” and the demographic transitions occurring now are powerfully influencing our markets. Mark Twain once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” So, what do we know for sure about Echo-Boomers, Baby-Boomers, and what it means for commercial real estate booms? Come to this session and listen to a leading industry economist discuss the influences of generational booms  and what they mean for commercial real estate markets across the country.

Mark Fleming serves as the chief economist for First American Financial Corporation. He can be reached at mfleming@firstam.com. Fleming will speak more in depth about this topic during a session titled "The Commercial Real Estate Economy" during ALTA's Annual Convention. Click here to register.