INTEREST RATE RISK, HEALTH CARE DEMAND, ENERGY AND TECHNOLOGY CHANGES ARE AMONG THE MOST IMPORTANT AND EVOLVING ISSUES IMPACTING REAL ESTATE ACCORDING TO THE COUNSELORS OF REAL ESTATE® (CRE®). THIS LIST, DEVELOPED BY THE COUNSELORS’ EXTERNAL AFFAIRS COMMITTEE, IS ADJUSTED ANNUALLY IN RESPONSE TO GLOBAL ECONOMIC CONDITIONS AND DOMESTIC PRIORITIES.
1. Low Interest and Capitalization Rate Risks: Historically low interest rates have propelled the economy and commercial property values—and debate continues about how fast—not if—interest rate and prices will adjust, making this the top issue in the market today.
2. Health Care: Market Transition Creates Opportunity. Demand for medical services and facilities are ﬁnally reaching a point of dramatic growth, and expanded health insurance coverage will provide further impetus for change and growth.
3. Capital Markets Resurgence: After resurgence in 2012, commercial transaction volume is up signiﬁcantly in 2013, and projected to increase in 2014, in line with forecast debt availability by banks, life insurance and conduit lenders.Are we heading to another cliff, or will reduced new supply, economic growth and lessons learned be enough?
4. Event Risks: Event risks,like the Russian Debt Crisis,9/11, Katrina and others have been key determinants of market performance in the past 15 years. The potential for event risk—European economic malaise, US political risk, Arab Spring, North Korea—is so high the potential for an event makes the list.
5. Effect of Climate Change/Weather on Coastal Properties: Superstorm Sandy was a game changer. Changes to the National Flood Insurance program for 5.5 million homes and businesses in special hazard zones are raising rates to cover the “true” risks and costs. Insurance in some cases is rising ten-fold. Ongoing ﬂood map changes create uncertainty for many communities.
6. Echo Boomer Housing Demand: The 80 million people born between 1982 and 1995 are changing historic demand preferences, often preferring smaller urban multi-family dwellings over suburban homes and mortgages. Heavy student loan debt and job uncertainty contribute to these preferences. The US is the only developed country with such a large echo boom—will demand preferences return to historic norms when Gen X or Y have children of their own?
7. Increased U.S. Natural Gas Mining and Reserves: US oil production is up 75% from 2008 and gas is up 25% from 2006. Potential reserves from the Monterey Shale formation in CA and other sources have made the US more energy independent. However, while energy production increases employment in regions where resources are plentiful, many communities are pushing backdue to the risk of boom-and-bust local economies and environmental degradation.This debate bears watching and will be an important determinant in regional winners and losers—although the story is a bit more complex than often suggested
8. Global Real Estate Growth and Risk: Emerging markets present both investment and development opportunities –and risks. Foreign investment in the U.S. is strong and is moving toward secondary markets as the U.S. continues to be viewed as a safe haven.
9. Impact of Technology on Ofﬁce Space: Ofﬁce space per worker declined 22% from 2010 to 2012, according to CoreNet global as a result of changing worker preferences and new mobility and of ﬁce technology that have redeﬁned the productive workplace
10. Retail Malaise and Repositioning: Internet sales could rise from 6.5% today to exceed 15% of sales by 2020. Already, some categories(books, music, ofﬁce supplies) top 40%. Smaller neighborhood stores and those in poor locations will struggle. Savvy leasing companies are repurposing space when retailers downsize. This can create residential turnover as the changing role of community retail transitions.
Learn more about these issues and other topics throughout the year by visiting www.cre.org/external_affairs.