Political Polarization, Global Uncertainty Top List of Issues Affecting Real Estate, Says Counselors of Real Estate

A Chinese textile company recently invested $410 million into this manufacturing facility in Arkansas. The Counselors of Real Estate are concerned that "uncertainty about changes to trade, travel and immigration policy threaten cross-border investing, hospitality properties, retail, and manufacturing supply chains, among other effects."

DENVER — Global uncertainty and political polarization are the issues that will have the most significant impact on the real estate industry in 2017 and 2018, according to The Counselors of Real Estate (CRE).

The findings come from the organization’s Top Ten Issues Affecting Real Estate, which it released Wednesday during a keynote address by Scott Muldavin, 2017 chair of CRE, at the annual conference of the National Association of Real Estate Editors in Denver.

CRE is a professional association for real estate advisors. Muldavin is president of The Muldavin Company, a real estate advisory firm based in San Rafael, Calif.

The list was created from dialogue between CRE’s members, all of which took place under the direction of two CRE members: Peter Burley, a research executive and author, and Victor Calanog, chief economist and senior vice president with Reis New York City.

The other issues earning rounding out this years’ Top 10 list include technology, generational disruptions, retail disruptions, infrastructure investment, housing, “Lost Decades of the Middle Class,” real estate’s emerging role in healthcare, immigration and climate change.

Below are brief summaries of each issue from the report. For more in-depth analysis, click here to read the full report.

  1. Political Polarization, Global Uncertainty — “Political polarization and global uncertainty are impacting decision-making at every level of government and throughout the business community. On an international level, recent elections in the United States, France, Austria, the United Kingdom and other countries point to resurging nationalism, testing existing diplomatic and trade relationships around the globe as exemplified by Brexit and NATO.”
  1. The Technology Boom“The tech start-up boom is revolutionizing real estate operations across the board. One of the biggest changes this year is not a killer app, but an unprecedented wave of commercial real estate technology innovations that are expected to change the way real estate is bought, sold and managed. Commercial real estate tech start-ups were impressive in 2011, with $186 million invested. This has grown exponentially. In 2016, investment reached $2.7 billion.”“In retail, the question has shifted from ‘Do you shop online?’ to ‘How many deliveries did you have today?’ Online retail continues to drive warehouse demand, but each foot of new warehouse space leased by online retailers translates into eight feet of vacant retail. Smart lenders and investors are already insisting that new construction reflect future demand patterns, not those with which we are currently familiar.”
  1. Generational Disruption“Boomers’ and Millennials’ divergent views of where they live, work and play increasingly impact the property markets. The Baby Boom generation of approximately 74 million (born between 1946 and 1964) is now smaller than the Millennial generation of some 75.4 million (born roughly between 1980 and 1997).”“A significant number of today’s real estate decisions, as well as those connected to the workplace and consumer spending, are made by people under the age of 40. Yet Boomers, too, remain engaged, continuing as productive members of the workforce in increasing numbers far beyond the traditional retirement age of 65. Millennials are moving into management positions and looking to raise children and own homes at the same time that Boomers seek to downsize or age in place. 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.”
  1. Retail Disruption“It is no secret that the United States has been over-retailed for decades. In a recent study by Cowan and Co., the United States boasts 40 percent more shopping space per capita than Canada, five times more than the United Kingdom, and 10 times more than Germany. Retailers unable to profitably transition into the multi-faceted new format have been forced to shutter physical stores, migrate into virtual space or discontinue operations entirely. Such stalwarts as Sears, Macy’s and JCPenney join countless other retailers in being forced to close multiple stores throughout the country, leaving malls anchored by these legacy retailers scrambling to reposition huge empty spaces or go out of business altogether.”“Despite this massive repositioning, we are not by any stretch of the imagination facing a ‘retail apocalypse.’ Restaurants have boomed in recent years and service-oriented outlets take up ever more space. Grocery-anchored malls remain steady — at least for now, although change is afoot as grocery models join the fray and prepare to reinvent themselves.”
  1. Infrastructure Investment“While political winds continue to blow in many different directions, it is clear that the need for infrastructure investment is critical. 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.”
  1. Housing: The Big Mismatch“An especially serious issue is the growing affordability gap and limited availability of housing in locations with significant job growth, particularly in major metropolitan areas and coastal regions. Those working in technology, finance and other highly paid fields have monopolized new, resale and rental product, raising prices on once affordable rental and for-sale housing and creating a crisis for lower paid workers and those who are unemployed. Younger workers seeking employment opportunities, many carrying substantial student debt, remain priced out of the owner market.”
  1. Lost Decades of the Middle Class“Retail properties serving primarily middle class customers are bearing the brunt of store closures. Malls with tenants serving high-income buyers are faring relatively better. 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.”
  1. Real Estate’s Emerging Role in Health Care“Medical services are increasingly being delivered in clinics, urgent care facilities and ambulatory surgery centers, reducing costly hospital visits. Building occupants are increasingly demanding that the space they inhabit be designed, constructed and operated in ways that advance positive health outcomes.”“Evidence of the importance of this trend is that most major real estate professional groups have recently ramped up their focus on healthy buildings. Designing buildings to specifically address health behaviors has become the most transformative and rapidly growing subtrend of the ‘Health and Wellbeing’ macro-trend.”
  1. Immigration“New immigrants tend to rent, boosting demand for multifamily housing, 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. Industries like tech that demand highly skilled workers may be forced to innovate and substitute capital for labor if they cannot fill vacancies by recruiting foreign workers, constraining job growth. Longer term, if the entry of immigrant populations that tend to have larger households is curtailed, there will be a limit on the so-called demographic dividend for economic growth, with less of a labor force to support an aging population.”
  1. Climate Change — “Value implications extend well beyond those properties that might be directly affected by flooding. For example, what if you live or work on a hill, but the access roads and key services you require flood? Values of all properties will be affected if airports, transportation infrastructure, and other community amenities are negatively impacted. Commercial properties and local economies in coastal regions will suffer if tenants concerned about community resilience or related tax consequences go elsewhere.”

To view the entire report, click here.

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