Global uncertainty and political polarization, technology and generational disruption are top concerns.
The Counselors of Real Estate, an invitation-only professional association of leading real estate advisors representing more than 50 real estate specialties, has released its annual list of the top 10 issues impacting real estate for 2017 and 2018.
Coming in at the one, two and three positions, respectively, are global uncertainty and political polarization, technology’s boom and generational disruption.
“The [CRE] consider these issues to be of importance in every aspect of the real estate industry, whether one is buying or selling or investing,” said Peter C. Burley, CRE, a real estate market and economic research professional in Oak Park, Ill. “An important consideration is that [these issues] are vastly intertwined and each plays against the other, as it were. But all are important to consider as practitioners.”
Burley, along with Victor Calanog, Ph.D., CRE, chief economist and senior vice president at Reis, a commercial real estate information service in New York City, led the member initiative that produced CRE’s newest top 10 list. There are about 1,000 CRE members worldwide.
About those 10 …
No.1: Political polarization, global uncertainty
Political polarization and global uncertainty affect decisions not only in government but also in business, including real estate. These issues affect real estate at all levels— globally, nationally and locally.
“For instance, if we look at political polarization and global economic uncertainty, we are talking about how the political environment has become quite acrimonious just about everywhere,” Burley said. “We can talk about nationalism and isolationism, as with Brexit [Britain exiting the European Union], the recent elections [of conservatives] in France, in the UK and here in the U.S.,” Burley said. “But the discourse has become so polarized that, even at the state level and the local level, it has become difficult to resolve issues that are critical for the services people expect and to enhance the quality of life.”
Some that come to mind include taxation, revenues and availability of services, according to Burley.
“In my community, for instance, we had a local bond issue to replace an aging high school swimming pool,” Burley said. “The debate got heated; neighbors argued with neighbors. It makes a difference if our political conversations make it difficult to make the decisions that need to be made….”
Burley pointed to the Illinois State budget crisis and how it has affected infrastructure maintenance, or the City of Chicago’s paralysis on the public school system.
“As an agent, one needs to be aware of the issues, at all levels, and how they might affect the market,” Burley said. “Does Brexit impact the volume of foreign investment in homes and condominiums? Probably it does. Little bond issues in ‘Every Village,’ Illinois, might affect the housing market there.”
No. 2: Technology’s boom
There is no denying technology’s power to transform businesses in all industries. Real estate is no exception. Technology is revolutionizing the ways in which real estate is bought, sold and managed, according to CRE.
Robots are no longer Hollywood science fiction. They’re real and going to take on the work that humans do. Robots threaten to take nearly a third of banking jobs in the next decade. CRE cited a study by McKinsey & Company that suggests that automation could replace as much as 47% of today’s jobs.
An area familiar to real estate agents because of its impact is big data. Consumers have access to real estate data that only real estate agents and other industry professionals used to see, changing the dynamic between buyer and sellers and their agents.
The lure of retail centers has shifted, thanks to Amazon and other online shopping options. Even homes have become technologically inclined, as smart homes become more popular and in demand.
No. 3: Generational disruption
According to a 2015 U.S. Census Bureau report, the Millennial generation surpassed Baby Boomers in number by nearly 8 million people. These two large populations, together representing about 162 million people, have very different views on how and where they live, work and play, according to the CRE.
“Generational disruption is also in play at the local level,” Burley said. “We are at a point where two enormous generations are actually living, working, and playing side by side in the workplace, in the neighborhood and at local recreational venues. So, the other mismatch is in design. Millennials are happy with smaller spaces, so long as they are close to public transportation and walkable retail, entertainment, etc. Baby Boomers who are looking to downsize and who also appreciate the amenities of walkability and public transport are also looking for space that can accommodate family visits —Thanksgiving Dinner!”
Real estate industry professionals need to understand the generational nuances to better meet the needs of these buyers and sellers.
No. 4: Retail disruption
This issue isn’t only impacting commercial real estate, according to Burley. Retail disruption goes beyond e-commerce. It also includes evolving consumer tastes, such as growing preferences for locally sourced goods and outlets for those goods; experiential destinations for retail; and consumers’ easy access to retail.
“How does retail affect the [real estate] practitioner? Retail accessibility is a critical element in a consumer’s location decision,” Burley said.
No. 5: Infrastructure investment
Infrastructure investment is critical, according to CRE. The movement of goods, including via port, airport, highway or railway, impacts the
the growing limit of available affordable housing (see #6 below), according to CRE.
Public transit, one of today’s most critical investment criteria of institutional investors, cannot meet revenue requirements of public-private funds, according to the CRE report.
“Initial federal budgets have zeroed out public transit investment, a dramatic problem for many communities and real estate investments,” according to the CRE report. “The sheer volume of need is also a concern, as state and local financial resources are severely limited due to pension liabilities and limited ability to raise additional revenue.”
No. 6: Housing’s mismatch
The housing affordability and access issue is acutely important to the real estate practitioner, according to Burley.
“Housing is becoming less and less affordable, whether one is looking to buy or to rent,” he said. “Supply is one part of the equation, certainly, but the kind of supply is also important.”
New home developers, according to Burley, are faced with the issue of costs and margins. When building new homes, the costs of land, materials, labor and financing come into play, he said.
“Builders are pricing in the margins, but most of the time, that places new home construction beyond the price point that new households or new families can afford,” Burley said. “The starter home of the 1950s and 1960s simply isn’t available in 2017. Similarly, apartment developers are faced with the same issues. So, where there is demand for rental housing — think downtown Chicago — the pricing, compared to incomes, becomes a very difficult equation to solve.”
No. 7: “Lost decades of the middle class”
While median U.S. household incomes increased in 2015, middle class incomes hover below inflation-adjusted levels from almost 20 years ago, according to CRE.
Middle class jobs are under pressure from automation and outsourcing. Middle class disenchantment, according to CRE, has been tied to today’s rise of populist candidates, which is tied to global economic and political uncertainty.
“Rising costs of living and student debt levels suggest that home purchase decisions will be postponed by the young. Rentals will not necessarily benefit in the most expensive, desirable urban locations; supply growth in multifamily housing counterbalances demand, and stagnant income levels constrain rent growth,” according to the CRE report.
No. 8: Real estate’s emerging role in healthcare
The real estate industry has become a big player in the quest to improve the population’s health with cost effectiveness, according to the CRE report. Clinics, urgent care centers and ambulatory surgery facilities are helping to reduce costs associated with hospital visits. Other models, including home care and virtual care, are changing the healthcare visit and landscape as well. All this impacts what occupants in healthcare facilities want and need.
Yet another aspect in this issue is the trend in healthy buildings, which are designed and built to promote health and wellbeing, according to the report.
No. 9: Immigration
Today’s potential for more restrictive immigration laws could impact companies’ access to qualified workers. According to the CRE, new immigrants tend to rent, which increases multifamily housing demand, especially in gateway cities.
“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,” according to the CRE report.
No. 10: Climate change
A report by the National Oceanic and Atmospheric Administration released in January 2017 suggested some sea levels could rise by as much as 6.6 to 8.6 feet by 2100. The NOAA reported that the annual frequency of disruptive and damaging flooding would increase 25-fold with a local sea level rise of 14 inches, according to the CRE report.
That’s bad news, especially for Miami, New York, New Orleans, Tampa and Boston — cities expected to suffer the most. South Florida and most coastal areas also are at notable sea rise risk. Residential properties are particularly vulnerable, according to the CRE.
The consequence of flooding could greatly impact real estate values. People have free access to flood maps and sea rise forecasts. Surging Seas and other websites allow individuals to map out how the rising sea risks might impact their properties and communities at different times, according to the CRE.
More on the horizon
While these are the top 10 issues, there are others that made the “CRE Watch List,” such as tax reform and monetary policy, various other policy matters and cannabis.
“When I look at these issues, I see the need to be aware of the global, national and local implications,” Burley said. “As a real estate practitioner, I have often said, ‘be aware of everything’ because it affects your business.”
What are your thoughts on the CRE’s list? Comment below!