Global uncertainty and political polarization top the list of issues expected to have the most significant impact on real estate throughout 2017- 2018, according to The Counselors of Real Estate ®, the invitation-only professional association for the industry’s leading real estate advisors. The Counselors’ 1,100 global members undertake extensive collaborative dialogue on issues and trends to finalize the annual list.
1. Political Polarization and Global Uncertainty
Political Polarization and Global Uncertainty are impacting decision-making at every level of government and the business community. Recent elections in the U.S. and other countries point to resurging nationalism and test relationships around the globe. Potential military conflicts seem more likely. Negative implications on real estate are immediate. Uncertainty about trade, travel and immigration threaten cross-border investing, infrastructure, affordable housing, local and state pension liabilities, and education.
2. The Technology Boom
Technology is revolutionizing real estate as it changes the way real estate is bought, sold, and managed. Commercial real estate tech start-ups have grown exponentially over the past 5 years. Robotic learning has accelerated automation in the workplace; as many as 47% of today’s jobs could be replaced by automation. Big Data supports real estate planning, investment, and space planning decisions. Online consumption drives warehouse demand up and retail space down.
3. Generational Disruption
Boomers’ and Millennials’ divergent views of where to live, work, and play impact the property markets. The generations cross paths everywhere and share space, despite disparate demands on the built environment. Real estate professionals need to understand not only the location preferences of each generation, but the design and amenity features, whether rental or owner occupied. One size will not fit all.
4. Retail Disruption
We are not, by any stretch, facing a “Retail Apocalypse.” Restaurants are booming. Grocery-anchored malls remain steady. The trend toward transforming retail into “experiences” continues to drive customer traffic to an environment targeted to a variety of age groups and interests. “Omni Channel” platforms encompass e-commerce and a host of spaces, physical and virtual. And, as retailers refine inventories, distribution methods, and fulfillment models, the retail market will survive– even prosper – in fresh, new ways.
5. Infrastructure Investment
The movement of goods is strained, aging, and highly vulnerable. In all forms (roads, bridges, pipelines, etc.) infrastructure needs have become more pronounced. Trump administration proposals suggest limited Federal Government investment, placing heavy reliance on local and state governments and public-private enterprises. This presents important opportunities for the private sector to direct significant funds to infrastructure projects, recognizing the need for infrastructure investment.
6. Housing: The Big Mismatch
A confounding supply-demand mismatch continues to impact markets worldwide. Lack of inventory has generated price spikes, fueling a growing affordability gap, particularly in coastal regions, where highly paid workers monopolize new, resale, and rental product, raising prices on once-affordable housing — creating a crisis for lower paid workers. Insufficient investment in, and government limitations on, creative housing solutions could lead to an affordability crisis.
7. Lost Decades of the Middle Class
Middle class incomes hover below inflation-adjusted levels from almost two decades ago. Middle class jobs remain under pressure, and disenchantment has influenced the rise of populist candidates in many countries. Middle market retail properties bear the brunt of store closures. Rising costs and debt are delaying home purchase decisions. Rentals do not necessarily benefit in the most expensive urban locations, where supply in multifamily housing lags demand, pushing rents higher.
8. Real Estate’s Emerging Role in Health Care
The real estate industry has emerged as a major player in improving health. Medical services are delivered in clinics, urgent care facilities, and ambulatory surgery centers, reducing hospital visits. In addition, beyond care facilities, building occupants increasingly demand that the space they occupy be designed, constructed, and operated in ways that improve health outcomes. Buildings designed to address health behaviors (i.e., the WELL Building Standard) are a growing trend.
More restrictive immigration laws appeal to voters concerned about jobs and security. At the same time, many companies bemoan the lack of qualified workers. Development projects stall from labor shortages. New immigrants also tend to rent, boosting demand for multifamily housing, and they aspire to own homes. Labor mobility and homeownership are constrained by limiting immigration, and economic growth is curtailed, with a smaller labor force to support an aging population.
10. Climate Change
The National Oceanic and Atmospheric Administration (NOAA) released a new report doubling forecasts of potential sea level rise by 2100. Most coastal areas are exposed to risk, while Miami, New York, New Orleans, Tampa, and Boston are projected to have the greatest problems. Commercial properties in coastal regions will suffer if tenants go elsewhere. Residential properties are vulnerable, with those counting on the equity from their home likely to sell before value declines.