Location, Location, Disruption: Adapting Real Estate Strategies to Shifting Realities

Market instability and a lack of short-term clarity challenge investors and dealmakers.

Economic volatility, remote work, energy constraints and other pressures are forcing firms to continually adapt their real estate strategies. The current environment requires agility, resilience and long-term vision. This article explores key forces reshaping corporate portfolios and developer strategies — and how forward-thinking teams are aligning physical assets with evolving business realities.

Powered Sites: A Hot Commodity

The outlook for the data center market remains bright, with digitalization, artificial intelligence and quantum computing generating ongoing excitement.

Demand for AI-ready data center capacity is projected to grow at an average annual rate of 33% between 2023 and 2030, with AI-capable facilities expected to account for 70% of total demand by 2030, according to analysis from McKinsey & Company. Other industry projections call for a compound annual growth rate of 10% to 11% in the data center market between 2024 and 2030.

This growth is driving a seemingly insatiable demand for powered real estate.

On the other side of the equation, the electric infrastructure in the U.S. is facing significant constraints, including pressure to absorb the transformation to clean energy (requiring new load connections and infrastructure), delays in the availability of switchgear, and backlogs for Federal Energy Regulatory Commission approval.

The mismatch in supply and demand for powered sites is attracting big dollars as private equity and other investors try to capitalize on this market opportunity. This has created an even steeper spike in demand for sites in the short term but could lead to more supply in the long term if investors can successfully convert raw land with access to power into developable sites.

Data centers aren’t the only operations in need of sites, power-fed or otherwise. The past five years have seen record-low vacancy rates for industrial and warehouse space. While the three sectors don’t have identical real estate priorities, there is significant overlap, setting up the potential for bidding competitions and escalating prices.

As investment continues to pour into AI, quantum computing and data centers, the industry’s ability to outbid other uses will continue to expand. To the extent real estate developers observe this in their own markets, their assessment of the “highest and best use” for their property may evolve, leading to the repositioning of assets previously intended for manufacturing or warehouse space. A prime example of this is Prologis’ efforts to identify buildings and sites in its portfolio to convert to data centers. Prologis, a global leader in logistics real estate, reported last December that it “expects to develop approximately 20 data center opportunities and $7-8 billion in additional investment” over the next four years.

It’s often said that retail real estate is all about location, location, location (i.e., access to consumers). Industrial real estate development is currently all about power, power, power.

Tariffs: Unpredictable Repercussions

Retail isn’t the only sector that needs access to customers. The undulating tariff wars threaten to make access to consumers considerably more expensive for many companies.

The unknowns surrounding tariffs have caused many companies to simply hunker down. Once the dust clears and companies venture forth into decision-making mode once again, it’s likely that many, whether domestic or foreign-owned, will have a new lens on access to the U.S. market. This will lead them to reconfigure location portfolios.  

On the other hand, to the extent the trade war dampens economic growth, as some are forecasting, the result could be less demand for real estate as companies forgo expansions and potentially even contract to the point of releasing real estate.

In the short term, as the fluctuations continue, there will be renewed interest in bonded warehouses and Foreign Trade Zones (see below), which give companies more control over when they admit product and materials into the U.S. This allows companies to try to time the entries on days when tariffs are lower.

Longer-term outcomes are more difficult to predict. However, the tendency toward protectionism exhibited by the U.S. over several administrations would indicate that tariffs (or other barriers to entry) will also trend higher. This creates pressure on companies dependent on the U.S. market to consider whether increasing operations in-country would be advantageous.

Federal Incentives Overhaul

The One Big Beautiful Bill Act (OBBBA), signed into law July 4, represents a fundamental shift in the federal government’s approach to economic incentives. Among the key outcomes were the Trump administration doubling down on the New Markets Tax Credits and opportunity zone programs, making them both permanent.

OBBBA continued the administration’s diminishment of clean energy-related incentives; however, a few elements of Inflation Reduction Act (IRA) benefits survived (at least in part), including the Section 45X advanced manufacturing production tax credit.

Other federal investment stimulus programs continue, including Department of Agriculture loan assistance and financing programs used in rural real estate development. Developers interested in utilizing these programs will be tracking the status of the Farm Bill, which is typically passed every five years. (The OBBBA contained some farming-related provisions but did not address the programs typically of interest to developers.)

As the Trump administration continues its overhaul of governmental operations, continued cuts to programs and funding seem likely, although the shocks will perhaps be lighter and less frequent going forward.

Access to People Still Matters

Although the office sector is no longer facing new, direct disruptions, it is still in the process of regaining its footing following the pandemic. Some companies that once focused on location, location, location (for labor) have questioned whether they still need a location (office) at all.

Yet there are signs of a gradual return to the office. As of January 2025, Kastle Systems reported 54.2% office occupancy (utilization), up from 23.6% in January 2021. (The general industry assumption for pre-COVID utilization was 60%.) Kastle has found a notably higher occupancy rate for Class A buildings. Weekly average occupancy dropped in July due to summer vacations, but the number of companies announcing increased expectations for in-office work suggests that occupancy rates will continue to increase on an annualized basis.

It will take time for the office sector to sort itself out, however. Vacancy rates — which indicate whether office spaces are leased, not whether they are physically occupied — remain near all-time highs, with the national average rising to 20%, up from 17.9% last year, according to Commercial Edge. Tech-heavy markets have been experiencing elevated vacancy rates of 25% and greater, but there are harbingers of hope. Manhattan’s rate has been inching  downward toward 16%, and Commercial Edge has Chicago’s rate at just under 20% and holding.

With in-office work on the rise, the notion that large urban centers were going to be abandoned due to remote work seems to be falling by the wayside. Nevertheless, the prevalence of hybrid work and the continued presence of remote work mean that smaller urban centers and suburbs should continue to enjoy increased relevance.

Meanwhile, manufacturers, warehousing, research and development, and other sectors still need humans to show up for work each day. Labor availability will continue to be a critical factor for real estate strategy, especially with persistently low unemployment rates and shifting immigration policies.

Navigating Disruption

Real estate professionals are attempting to interpret and respond to what seems like a never-ending parade of disruptions. Market stability and short-term clarity are in short supply, making it a challenging environment for investors and dealmakers alike.

The key is tracking the right indicators and recognizing signals of the smoke “clearing” in real time. Among the signals to watch for are an easing in the availability of powered sites, a reduction in lead times for new interconnections with the grid, a slowdown in new tariff announcements, passage of the Farm Bill and stabilization of office vacancy rates.  

Tracey Hyatt Bosman, CEcD, CRE, is managing director at Biggins Lacy Shapiro & Co., one of North America’s largest specialty site selection and incentives advisory consulting firms.

Understanding Bonded Warehouses and FTZs Bonded warehouses and Foreign Trade Zones (FTZs) are designated locations that function as if they are outside U.S. customs territory despite being fully within U.S. borders. A bonded warehouse is a secured facility supervised by customs authorities where imported goods can be stored (generally up to five years) without paying duties until they are removed for domestic use. An FTZ designation is similar but also offers potential duty reductions and no time limits on storage. Within an FTZ, companies can assemble, test or manufacture products, as well as dispose of scrap material, before officially importing the goods into the United States or re-exporting them to other countries. Depending on the product and operation, the ability to manipulate goods within the FTZ can provide an opportunity to lower overall duties. Bonded warehouses and FTZs do not offer full protection from the impacts of trade wars, but under the right circumstances, they can provide greater flexibility and cost savings for importers.

• Magazine Article
• Development/Ownership
• Foreign Trade Zone
• Data Centers
• Office
• Artificial Intelligence (AI)