Coldwell Banker Commercial recently held its western regional conference at the Queen Mary in Long Beach. President and Chief Operating Officer Fred Schmidt was in town for the event and gave the Business Journal insights into national trends in commercial real estate. As the company’s leader, Schmidt oversees more than 200 offices in 43 countries.
“The best way to assess it is we’re looking at slow, steady growth, but we’re taking nothing for granted given the volatility in the market,” he said. “But if you look at all the indicators in terms of commercial real estate across the board, supply has been gradually decreasing – office, industrial, retail.”
Pictured at Coldwell Banker Commercial’s (CBC) western regional conference aboard the Queen Mary are, from left: Fred Schmidt, president and COO of CBC; Becky Blair, president and principal of CBC BLAIR WESTMAC in Long Beach; Tim Macker, president of CBC WESTMAC based in Los Angeles; and T.C. Macker, managing director of CBC WESTMAC. (Photograph by the Business Journal’s Larry Duncan)
The multifamily market has been particularly strong among commercial markets, with increasing demand and growth, Schmidt said. “Demand has been gradually increasing. As a consequence, you’re seeing stabilization and actually continuing increasing rents,” he explained. “That has actually been the same story for the last three-and-a-half to four years.”
The office market has been undergoing systemic changes for the past decade due to changes in employment trends, according to Schmidt. He noted that Long Beach’s office market, which has seen vacancy rates hover around 18% for the past couple of years, is reflective of nationwide trends in this sector. Nationally, he estimated the vacancy rate of office space has been around 16% in the same period.
“No. 1, it’s a function of employment. No. 2, the systemic change is that the average square footage per employee has gone down over the last 10 to 12 years somewhat dramatically,” he said of the factors playing into office vacancy rates. “About 10 to 12 years ago, the average was about 250 square feet [of space] per employee. Now it’s averaging about 150.”
Schmidt has observed Long Beach transitioning to a “live, work, play” environment, which he expects will impact the local office market. “I would suspect you have some functionally or economically obsolete office spaces that are being converted to hotels or high density residential or a combination of both,” he said. “And that is going on a lot around the country also.”
Retailers are seeking to increase their industrial capacity and, additionally, are seeking smaller square-footage facilities that enable them to have distribution points closer to consumers. “We’re seeing that around the country. And so it’s part of the supply chain and the omnichannel approach to retail,” Schmidt said.
Millennials are driving this omnichannel approach, in which storefront retailers are more closely connected to their online sales and distribution centers. For example, Schmidt has a daughter in college who recently went to J. Crew to purchase some clothes. They didn’t have her size but offered to have them shipped to her home within 24 hours. “That’s the omnichannel approach. They are looking at their retail locations, industrial locations and their whole supply,” he said.
Because Millennials are also seeking experiential shopping – they want to be able to take cooking classes at a kitchenware store or yoga classes at an activewear retailer – higher-end shopping centers that can accommodate this trend are doing well, Schmidt said. Discount stores are also doing well, but middle-end retailers are struggling more than others, he noted.
For the next 20 to 25 years, Millennials will, for the most part, “dictate where you live, work and play,” Schmidt said. “Not to say that us boomers are going away. In fact, boomers control a tremendous amount of wealth and have a lot of spending power,” he added. He noted that the generation following the Millennials – those who are about 20 years old and younger – is similar in numbers to the Millennial generation and stands to make just as big of an impact on commercial real estate.
From what Schmidt knows of Long Beach, the city is poised to take advantage of the live, work and play lifestyle Millennials are seeking. “You can see the dynamic in the location, accessibility, lifestyle on the water – all those things. My impression is very positive,” he said. “[There are] good long-term prospects with Long Beach.”