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July 21, 2017

10 Biggest Threats Facing Real Estate

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10 Biggest Threats Facing Real Estate

Global uncertainty and political polarization are the top issues facing the housing industry in 2017 and 2018, according to The Counselors of Real Estate’s annual list of the Top 10 Issues Affecting Real Estate. The list was compiled using feedback from 1,100 real estate advisers from around the world who met at a recent CRE conference.

Many of the issues are interconnected and reflect disruption in the economy and multiple real estate sectors, says 2017 CRE Chairman Scott Muldavin. “Despite this unsettling environment, opportunity remains embedded in every issue on the list,” the CRE report notes. Here are the top 10 issues cited in the report.

1. Political polarization and global uncertainty. “Uncertainty about changes to trade, travel, and immigration policy threaten cross-border investing, hospitality properties, retail, and manufacturing supply chains, among other effects,” the report notes. “Rising interest rates and retail inflation will make middle-class homeownership that much more difficult. Longer-term implications could be much more severe, as polarization prevents long-term fixes to issues such as infrastructure, affordable housing, local and state pension liabilities, and education.”

2. The technology boom. An unprecedented wave of commercial real estate technology innovations are expected to change the way real estate is bought, sold, and managed. Investments in commercial real estate tech startups hit $2.7 billion in 2016. About 1,600 of these startups now exist worldwide. Robots, big data, autonomous vehicles, and online retail are also expected to have a major impact.

3. Generational disruption. “Boomers’ and millennials’ divergent views of where they live, work, and play increasingly impact the property markets,” the report notes. “The generations are crossing paths everywhere: in the workplace, in housing, and at the local bar and grill, intersecting and sharing spaces despite their often disparate priorities when it comes to the built environment.”

4. Retail disruption. “The trend toward transforming retail into ‘experiences’ continues to develop and is offsetting shrinkage in the physical bricks-and-mortar consumer-goods platform,” the report says. “‘Experiential’ retail drives customer traffic to a more diverse and highly participatory environment targeted to a variety of age groups and interests. This sector has transitioned into a kind of ‘Omni Channel’—encompassing e-commerce, reduced or repurposed physical elements, and a host of previously unforeseen spaces, both physical and virtual—with a current emphasis evolved from bricks-and-mortar shopping to the timely, efficient transfer of goods from source to inventory to consumer.”

5. Infrastructure investment. The private sector is directing significant funds to infrastructure projects, recognizing the need and long-term rewards of investing in roads, bridges, tunnels, ports, and airports. Investors now oversee $376 billion in U.S. infrastructure dollars. “It is clear that the need for infrastructure investment is critical,” the report says. “The movement of goods, which involves everything from ports to airports to warehouses to roads, highways and railroads, is further straining an aging and highly vulnerable interior framework. Add to this the need for pipelines, electricity transmission, and water distribution, and the immediacy of infrastructure needs becomes even more pronounced.”

6. Housing disparity. “Safe, decent, affordable housing has been shown to have a stabilizing effect on urban economies, crime, and public health,” according to the report. “A current lack of inventory has generated a spike in home prices and, as a result, declining affordability for many home buyers, particularly those in lower-income sectors.  A critical disparity exists between housing needs and housing supply.” The report cites a growing affordability gap and limited availability of housing in locations with significant job growth, such as major cities and coastal regions.

7. Threats to the middle class. In 2007, the average middle-class income was $57,403. Now it hovers below inflation-adjusted levels from nearly two decades ago at $57,909. These income levels have yet to return to their pre-recession highs, and stagnant income growth will continue to press on the middle class.

8. Emerging role of healthcare in real estate. The nation spends more than $3 trillion each year on healthcare costs—about $10,000 per person—which is double the average for developed countries worldwide. “The real estate industry has emerged as a major player to cost-effectively improve people’s health,” the report notes. “Building occupants are increasingly demanding that the space they inhabit be designed, constructed, and operated in ways that advance positive health outcomes.” A growing focus on healthy buildings is emerging, as people spend about 90 percent of their time indoors. Research from the Mayo Clinic shows that healthcare contributes 20 percent to maintaining people’s health, while environmental and behavioral factors account for 40 percent. 

9. Immigration. As the Trump administration seeks to enact more restrictive immigration laws, some housing leaders are growing concerned about labor shortages in homebuilding. Demographers note that immigrant groups are a source of household formation. “New immigrants tend to rent, boosting demand for multifamily housing, especially in gateway cities,” according to the report. “Recent surveys suggest that immigrant populations aspire to own homes and to move relatively freely from cities to suburbs and back in the search for employment. Labor mobility and homeownership rates will be constrained by limiting immigration.”

10. Climate change. The National Oceanic and Atmospheric Administration released a report this year that shows sea level rises are expected to more than double from 2013 forecasts—to between 6.6 and 8.6 feet by 2100. “While a potential rise of sea level may seem far in the future, NOAA also estimates that annual frequencies of disruptive and damaging flooding would increase 25-fold with only a 14-inch increase in local sea level rise,” according to the report. “Major cities such as Miami, New York, New Orleans, Tampa, and Boston are projected to have the most costly problems, with South Florida and most coastal areas all exposed to differing levels of sea rise risk and cost. The implications of potential sea level rise and related flooding on real estate values is positioned to explode due to dramatic increases in the volume and accessibility of information on the consequences of sea rise.”

Source: “Political Polarization, Global Uncertainty Top CRE 2017-2018 Top 10 Issues Affecting Real Estate List,” The Counselors of Real Estate (June 14, 2017)