As industry experts look ahead to a new year and a new decade, many are predicting a robust 2020 as slow but steady economic growth supports continued investment and development across commercial property sectors.
The Fed’s 2019 rate cuts have helped to boost economic activity with plenty of market momentum going into the new year.
“After an extremely strong 2019 for HSA Commercial Real Estate, we’re looking to build on those successes as we move forward with new industrial, retail and healthcare projects in familiar markets with strong long-term fundamentals,” said Bob Smietana, vice chairman and CEO of HSA Commercial.
Industrial Revs Up Spec, Infill Development
HSA plans to accelerate industrial development in 2020, with several speculative projects that will help meet market demand in key distribution hubs.
In the Chicago area, where the vacancy rate has fallen to its lowest level in nearly two decades, there remains an almost insatiable appetite for well-located Class A warehouse space. This is especially significant given all of the supply that’s been added to the market, with 14.8 million square feet completed through the third quarter, up 56.5% over the same period in 2018, according to Cushman & Wakefield. Last year, HSA completed the largest single industrial building in its portfolio, a 757,880-square-foot warehouse in Shorewood, Ill. Known as the Heartland Corporate Center, it is located near the I-55/I-80 interchange and a single tenant quickly leased half of the building.
“Southeast Wisconsin and Indianapolis also remain target markets for HSA Commercial in 2020,” Smietana said. “Like Chicago, both have benefited from a fundamental shift in how goods are stored and delivered, with each offering a centralized location near major population centers, with easy access to highways and airports.”
Much of the industrial sector’s growth has been fueled by e-commerce, and as Amazon and traditional retailers look to fulfill online orders as quickly and efficiently as possible, the last mile has become the most critical portion of the supply chain. As a result, in 2020, developers will continue to look for opportunities to develop micro-fulfillment centers in urban areas like Chicago’s Pilsen neighborhood, bringing them ever closer to the consumer.
Strong Prognosis for Healthcare Sector
Industrial isn’t the only sector that was in good health in 2019. With an estimated 10,000 baby boomers turning 65 each day since 2010, 1 in 5 U.S. adults will be retirement age by 2030, according to the U.S. Census Bureau. As medical providers serve a growing number of seniors who are living longer than previous generations, demand for healthcare services – and the facilities where those services are provided – is on the rise.
As providers look for ways to maximize convenience and minimize costs, many are moving services to outpatient centers that are more affordable to operate, even if they’re located on the same campus. In early 2020, HSA PrimeCare will complete construction on a 40,000-square-foot medical office pavilion housing urgent care, occupational health and primary care clinics, among other medical tenants, on the campus of Silver Cross Hospital in New Lenox, Ill. The project is one of several HSA PrimeCare has developed on behalf of the hospital over the past decade.
Health systems are also targeting Main Street locations that benefit from visibility and accessibility. An example is the Froedtert & the Medical College of Wisconsin Drexel Town Square Health Center in Oak Creek, Wis. Planned and developed by HSA PrimeCare, the 109,000-square-foot center houses multiple specialties under one roof. It is part of the larger 85-acre mixed-use project called Drexel Town Square that includes a new city hall, public library, restaurants, storefronts and other service-oriented businesses, as well as a hotel and apartments.
“Whether care is provided on or off campus, there’s a greater focus on the patient experience – a trend that will impact how medical office buildings are designed and operated going forward,” said Smietana. “The old-school doctor’s office with outdated interiors won’t cut it five years from now, and as health systems consolidate, they’re thinking strategically about how facilities can serve patients today while anticipating the needs of tomorrow.”
Retail to Mix Things Up
As noted in a recent CBRE report, contrary to headlines predicting the demise of brick-and-mortar retail, more stores are opening than closing. Generation Z, in particular, has helped shift the narrative to one of revival, favoring a shopping experience in which orders are fulfilled in stores, even if they originate online. Once at a physical location, they can fully immerse themselves in the brand, discover and test out products they might not otherwise find, and receive personalized service that apps or websites simply can’t match.
“The most successful centers will be those that succeed in creating a destination – one that encourages regular and repeat visits through a compelling mix of services and experiences unique to that location,” said Smietana. “In some cases, this means introducing new uses that make sense in a shopping center but, historically, weren’t located there.”
HSA Commercial’s The Mayfair Collection, a 69-acre mixed-use development in the Milwaukee suburb of Wauwatosa, houses 400,000 square feet of retail, together with a mix of local restaurants. Since the first phase opened in 2014, we’ve expanded the center with a Hilton Homewood Suites hotel and 300 luxury apartments. In January, Serendipity Labs will open suburban Milwaukee’s first coworking space – a 32,000-square-foot location – at The Mayfair Collection. Subsequent phases of the project may include corporate offices, as well as a high-rise apartment building for seniors who would benefit from the walkable lifestyle we’ve created.
“As a company that has developed and operated across property sectors, we understand how uses can be combined so that the whole is greater than the sum of its parts,” said Smietana. “The key to success in retail – and real estate in general – is adaptability. So, we enter the new decade knowing that where we end up is likely going to be different than where we think we’ll end up, and that with a healthy level of unpredictability comes opportunity.”