Emerging Opportunities: New CRE Sectors Poised for Growth
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As the U.S. economy continues to evolve, savvy investors are studying the commercial real estate (CRE) market to identify sectors with strong, reliable growth potential.
While the last few years have seen major changes in CRE's role in the property investment market, some promising trends have been identified.
These add up to opportunities for investors shopping for an existing property, and developers with the expertise to build facilities needed by today's emerging businesses.
Here, we'll take a closer look at four CRE property types that align with ongoing trends and demographic shifts: life sciences facilities, warehousing and distribution centers, senior housing and medical facilities, and mixed-use developments.
Here's an introduction to life science facilities and their potential for CRE investors.
Life Sciences Facilities
The rapid expansion of biotechnology, together with its importance to our lives, is fueling demand for specialized real estate to support research, development, and manufacturing activities.
These CRE properties are often described as life sciences facilities because tenants are involved in biotechnology, often shortened to biotech.
Biotech staff develop new products to improve human health and society. These may be new vaccines, improved methods of treating existing diseases, and even personalizing medical treatments based on patients' genetic makeup.
Agriculture is another area where biotechnology is making a difference. Today, our farmers can produce disease- and pest-resistant crops, while livestock breeders use biotech to produce healthier meat and dairy products.
These and other types of research and development (R&D) require the specialized atmospheres provided by life science facilities, such as laboratories, clean rooms, and temperature-controlled storage.
A 2022 research article predicted that life sciences inventory could grow by over 30% by 2027, based on current trends and demand drivers.
Investors who prefer to manage their CRE purchases may want to look closely at the top three life science clusters in the nation:
- Greater Boston;
- San Francisco Bay; and
- San Diego.
As of spring 2024, life sciences facilities represent promising opportunities for careful CRE investors.
Other types of facilities that are showing signs of growth are strategically located logistics properties, such as the following types.
Warehousing and Distribution Centers
The rise of e-commerce has fundamentally reshaped the retail landscape, leading to a corresponding boom in demand for warehousing and distribution centers.
As online sales continue to capture a larger share of overall retail spending, the need for efficient, strategically located logistics properties will only intensify.
Investors who can identify well-positioned warehousing and distribution assets, together with their future tenants, will benefit from being part of streamlined supply chains.
One example of the relationship between warehouse storage and e-commerce: the need for specialized storage for prepared meal kits on their way to home delivery.
Introduced over 10 years ago, global meal kit revenue grew to over $17 billion in 2023 and is forecast to exceed 25 billion by 2027. Investors who can provide refrigerated warehouse storage for these during their trip to consumers' homes can expect a high ROI in return.
While the initial investment in cold storage is estimated to be around three times the investment in a non-refrigerated unit, this type of storage is steadily growing in demand.
Like any other investment, investors will see a higher ROI from refrigerated storage facilities that are in an ideal location for tenants, their suppliers, and end customers.
Another CRE sector with a growing tenancy base: the aging population. Here are details of current investments that can improve their lives.
Senior Housing and Medical Facilities
The aging of the U.S. population is creating significant opportunities in the senior housing and medical facility sectors.
More than 4.1 million Americans will reach the age of 65 every year from 2024 through 2027, according to estimates from the Retirement Income Institute at the Alliance for Lifetime Income. They're the biggest number of Americans hitting that age in history.
Even with more retirement-age workers choosing to postpone retirement, there is a growing need for assisted living communities, skilled nursing facilities, and similar properties that cater to the unique needs of older adults.
Investment opportunities exist within the development of new CRE properties, renovation of existing ones, or repurposing buildings that formerly served a wider age group.
Potential investors in this sector may be best served taking a long-term approach. This is because research has shown that the number of people reaching their 85th birthday will triple by 2060.
A fourth CRE opportunity—mixed-use developments—can provide an investor/owner with unique opportunities to provide tenants with an enhanced quality of life, and a choice of development or direct investment options.
Urban Markets Embrace Mixed-Use Developments
These generally include residential, office, and retail components within a single project and are becoming increasingly popular in urban markets across the United States.
These offer experienced investors several advantages, including:
- The potential for diversified income streams;
- The chance to design and create vibrant, walkable communities; and
- The opportunity to capitalize on the growing preference for live-work-play environments.
Perhaps one of the biggest mixed-use projects still in the planning stages: Halsted Landing in Chicago, Illinois.
When completed, Halsted Landing will provide high-rise housing with almost 2,500 residential units, plus vehicle and bicycle parking along the Chicago River. Over 8,000 square feet of retail space will serve residents.
As more cities embrace the concept of mixed-use development as a way to promote sustainable growth while creating new urban neighborhoods, investors who can identify well-conceived projects in strong markets may find significant upside potential.
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