Millennials and Gen Z are driving trends in commercial real estate, panelists say

Feb 21, 2019

Asked to forecast where the Richmond area’s commercial real estate market is headed in the next five or 10 years, experts speaking Tuesday didn’t have solid predictions.

But they agreed that millennials and the generation coming behind them, Gen Z, are driving trends such as coworking spaces and demand for smaller apartments with lots of communal amenities in walkable urban areas.

“We’ve been hearing that we’re in extra innings, which I believe,” in multifamily, said Wink Ewing of commercial real estate firm Newmark Knight Frank, using a baseball metaphor to describe the economy within the commercial real estate market.

Ewing and other experts shared their observations at the Greater Richmond Association for Commercial Real Estate’s annual Commercial Real Estate Market Review. The event, held at The Westin Richmond hotel, drew several hundred area real estate professionals.

“It doesn’t seem to be stopping. The fundamentals are good across the sector,” Ewing said of the multifamily sector.

Last year, 2,300 new units came online in the Richmond market, and all were absorbed, he said. This year, an additional 3,200 are in the pipeline, he said. “It still might not be meeting demand,” he said.

Of the sector long term he said, “As long as there’s not a major change in monetary policy, the fundamentals for multifamily are going to stay strong.”

The commercial real estate sector includes retail, industrial, office, multifamily, hotels, restaurants and other business uses.

Among the office sector, the buzz word is coworking, said Lisa Ruggles, senior vice president of global research for real estate analytics firm CoStar Group, who served as the panel’s moderator. She asked panelists how sharing office space was affecting leases and office occupancy rates.

“Are they being seen by owners as just another tenant or are they starting to be seen as competition?” Ruggles asked.

Amy Broderick of brokerage Cushman & Wakefield | Thalhimer said she has had landlords inquire about getting coworking tenants.

“It’s a way for them to have exposure to their building,” Broderick said. “We are not necessarily competing with [coworking]. I think it will be really interesting in the coming years to see how that transforms within the Richmond market.”

Hotel sector supply has grown at about a 1 percent rate annually, said Neil Amin, the president and CEO of Chester-based Shamin Hotels, the region’s largest hotel operator. That’s below the national growth rates of 2 percent.

The retail sector picture is mixed.

There are the empty former anchor stores at Virginia Center Commons with a lot of land around them “that present redevelopment opportunities,” said Will Bradley, a senior vice president at Colliers International.

On the other hand, in other areas even less desirable, class C retail space is pretty much taken, said Peter Vick with brokerage Divaris Real Estate, describing a conversation with a client looking for a strip shopping center around Parham Road and Broad Street to purchase and demolish to build residences.

“They are pretty well-occupied and the cash flow is good,” he said.