Views from ULI 2012 Fall Meeting (Part 2)

The end of formula driven real estate

Let’s be clear. Formula driven real estate solutions are not dead. In fact, for large, national organizations, there has to be at least some degree of uniformity in what deals are acquired, how they are developed, and what they should look like. The end of formula driven real estate instead means that the most resilient projects will be slightly unique in their look, implementation, and atmosphere that they become an irreplaceable product in their own right.

Consumers increasingly live in a world where they expect products tailored to their individual lifestyle, tastes and location. Personalization has become more ubiquitous due to the sophistication of internet marketing techniques that allow companies to micro target their products.

Many developers, investors, and tenants discussed the demand for unique, experience oriented developments going forward. Online purchasing will continue to accelerate, and owners must focus on experience as much as tenant mix to continue to drive foot traffic and rental rates.

As millenials continue to establish themselves and strike out on their own, they are seeking walkable cities in which to settle. Some of the fastest growing cities in the country offer one-of-a-kind amenities, pedestrian friendly neighborhoods, and varied entertainment districts. Both young and old alike will continue to gravitate away from the suburban centric areas so prevalent for the last 4 decades but many will be limited by the need to keep proximity to their suburban located offices and the desire to stay located within stronger suburban school districts.

The best of both worlds are those developers who can capitalize on site areas and create mini town centers where suburbanites can escape for an excursion similar to what they’d find in downtown. There are multiple developments already capitalizing on this model (see the Mosaic District in Falls Church, VA outside Washington, DC).

It is not just retail benefitting from these strategies either. Both office and multifamily developments saw stronger rents and occupancy statistics when built in manners that encouraged greater activity within the development. One of the first questions being asked by tenants today is what can be easily accessed within proximity to potential space. Owners must think about this as they invest in upgrades or reformatting their assets.

Draws and Programming are essential

No matter the size, mix of uses or tenants, two things are paramount to the success of these developments in the future: anchor institutions that can draw people in and successful programming that can keep them engaged.

Beyond timing the market correctly, these two factors were cited as the most critical aspects to project success. Deals that did not secure a significant anchor tenant or institution, struggled until this was remedied. Likewise, projects that did not sufficiently budget for events and activities became mired in poor perception and difficulties in retaining interest from the public.

These aspects are important to help artificially create what true urban downtowns are able to harness organically through their size and density: a constant buzz of activity and excitement. Through food truck competitions, concerts, movie festivals, and other creative events, projects nourish the social experience consumers are looking for when they venture out of the house. It all contributes to creating the atmosphere of that vaunted “third place” beyond home and work that has become so much more important in how people are interacting with real estate today.

Consumers will continue to become more discerning in where and how they spend the limited free time they have. Creating destinations that echo an experience is now more important than ever.

For more information, please write to info@verriscapital.com.