On February 28, Laurie Stanziale once again had the pleasure of participating in a panel discussion at the sold-out Women's Real Estate Forum, which brought together more than 500 dynamic women who are shaping development and construction in New York City and beyond.
The panel she moderated, "Changing the Face of Real Estate: Development & Construction Trends," covered some of the industry's hottest topics: e-commerce, changing demographics and lifestyles, wellness and sustainability, rising interest rates, smart technologies, labor constraints and the shortage of affordable housing.
Here's a look at key takeaways from the conference that are impacting today's construction industry professionals from Laurie's perspective.
How are construction costs impacting project decisions?
The battle still continues between
The original draw of non-union labor was lower cost, but that gap is closing as well. Some developers still are not entirely confident in non-union labor so they choose to use union labor for the more complex and risky project elements, such as foundations. This approach allows developers to reap the lower cost of non-union labor while maintaining the quality of their projects. Despite these positive trends toward more labor options, overall construction costs and, most importantly, land costs in Manhattan make project finances an ongoing challenge. Developers true to Manhattan development try to buy trades and materials early and lock in prices. Other traditional New York developers are looking at the outer boroughs and even outside of New York City for project sites.
Panelist Shazia Shazid of Midwood Investment and Development acknowledged that each market has its distinct challenges, which is why Midwood puts boots on the ground in each market to effectively determine the target audience, what to build and whether the project will work.
Operating in multiple markets across the country presents many challenges, including varying zoning regulations, entitlement processes, available resources, material and labor costs and pools, trends and ease of assembling a good team.
Ms. Shazid also said that Midwood tries to deal with high costs by keeping buildings and their systems simple and by making buildings as efficient as possible. Money saved on systems is shifted to the end-user experience by maximizing spaces with lots of storage and no wasted corners or hallways.
Financing remains an issue for some firms' projects as well. Construction companies' relationships and track records are key to good financing options, which creates a disadvantage for those new to the game who do not have such histories to rely upon. Alternative funding sources and non-traditional lenders are becoming increasingly viable alternatives to national banks. Deal trends include lower percentages of traditional lending (just more than 50% of the financing) with 10-15% of mezzanine debt at higher rates.
Millennials are becoming home buyers and driving new trends. They tend to be careful with their money and do not want to pay for things they will not use. As a result, amenities in buildings are becoming very neighborhood-specific.
With smaller units on the market, the focus is shifting to shared community spaces. Millennials see such spaces as a way to gain a sense of belonging. Going to a lounge in the lobby of their building to work combines the "working from home" concept while helping them avoid the isolation of not leaving their apartments.
Units that are efficient along with being smaller are desirable and more profitable, but storage space and smart use of space are still important. The smallness of the unit is offset by more activity spaces within the building and on rooftops.
Perhaps no trend is more prominent than that of wellness at home or at work. Wellness can refer to the building structure itself or the experiences and amenities that the building space offers its occupants.
The LEED rating system, which was introduced in 2000, set goals that developers strived to achieve. LEED certification was a "stand-out" element of a building, distinguishing it from others as a symbol of a healthy building and healthy living. Achieving any level of certification was a challenge. Now, almost 20 years later and after two updates to the New York City Building Code, most buildings can qualify as "certified," the lowest LEED level, just by complying with the Building Code. Other rating systems that emerged also seem to carry less weight than they once did because more and more buildings are qualifying for this "healthy" status.
So, what makes a building stand out now? Biophilic design - which connects people in the built environment to the natural environment - is trending, regardless of a formal agency certification. Studies show that there are beneficial effects of being surrounded by natural elements such as views, daylight, natural textures, water features, greenery, roof gardens
Many people expect their employers to be committed to sustainability, and they have the same expectations for where they live and the companies that construct their buildings. Buyers are willing to pay more for sustainable components in consumer products as well as in their homes. The "healthfulness" of the materials that create the built space is becoming more important. The question is no longer: Does the building have a gym? (Most new buildings, and many retrofitted older
Despite many improvements in sustainable sourcing, there is always more work to do. Mass timber is a good example. It is fire resistant, strong, sustainable and cost-efficient - but, unfortunately, current regulations in New York City do not make it very feasible. Two new buildings in Brooklyn will use mass timber as part of a project with brick facades. Perhaps they will be leaders in bringing mass timber into favor in New York City.
Decreases in interior drywall and interior space divisions promote increased daylight, shared spaces, communal workspaces and exposed meeting spaces. While outdoor spaces are always a focus in residential, such spaces are a newer trend in commercial tenants because access to outdoor space is believed to help workers perform and feel better. Newer commercial buildings are transforming rooftops that once were only used for mechanicals into beautiful gathering spaces. Commercial buildings are also being outfitted with quiet, meditative and restful places to reduce stress and improve productivity. People are spending more hours at work than before, so demand for these wellness elements in the workplace is growing.
Smart technology for maintaining spaces, including individually controlled lighting, temperatures
Many developers comment that daycare services both at home and at work are in demand, but the licensing and insurance risks still pose obstacles. We will see how this amenity can be incorporated in the future.
Combining the Old and the New
While many trends focus on the new, there is also a desire to combine the uniqueness of a building's older, pre-existing characteristics with the more modern improvements available. To achieve this, some users are willing to give up certain efficiencies for the overall "feel" of the building. An overbuild project (building something new on top of something old) is a way to achieve results for a mix of tenants.
Kate Bicknell of Oxford Properties spoke about the redevelopment of the 1.3m square-foot St. John's Terminal, which she is leading. St. John's Terminal stands out as a great example of two trends: respecting the historic elements of a site while creating something new; and the importance of shared outdoor space. St. John's Terminal's repurposing of the old terminal accomplishes a feel of the old and the new. Oxford is preserving old rail beds on the project's second floor and exposing some of them as part of the building's architecture, while also maintaining technology trends of the former Bloomberg space. The terminal will also have 1.5 acres of open space with a connector to Hudson River Park, connecting occupants to this park in a unique way.
Technology will always continue to move us forward, but smarter developers and buyers are also largely influencing what will become available on the market in the coming years.
A Closing Note
We just celebrated Women's History Month, so it is worth mentioning that the ever-growing influx of women into decision-making positions is also an influencing factor in the development and construction trends we see today. Women often process information and tackle problems differently, and those traits can lead projects in different directions than before. I look forward to continuing to watch these influential women make an impact on the world of construction and to see what lies ahead for them in this dynamic industry.
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