top 10 issues affecting cre

The Top 10 Issues Affecting Commercial Real Estate in 2018

@Transwestern | transwestern.com@CounselorsofRE | cre.org

The Top 10 Issues Affecting Real Estate is developed annually by the Counselors of Real Estate, led by Research Executive and Author Peter C. Burley and Chief Economist and Senior Vice President Victor Calanog, Ph.D.


What are the top issues affecting commercial real estate, and what will their impact be?


1. POLITICAL POLARIZATION AND GLOBAL UNCERTAINTY


POLITICAL POLARIZATION AND GLOBAL UNCERTAINTY

� Impacting decision-making in government and businesses �Resurging Nationalism testing international diplomacy and trade relationships �Local representatives find it virtually impossible to find common ground necessary to move forward �Read more on how political party impacts the economy and commercial office demand in this report

https://download.transwestern.com/public/Media/Republicans-VS-Democrats_July-2016.pdf


We will see declines in: �Cross-border CRE investment �U.S. gateway ports and border communities � Industrial warehousing and logistics �Hospitality business �Retail business � Infrastructure

POLITICAL POLARIZATION AND GLOBAL UNCERTAINTY


2. THE TECHNOLOGY BOOM


TECHNOLOGY BOOM

�Robotic learning is accelerating automation �Big Data is being used in real estate planning �Autonomous vehicles are on the rise �Each SF of new warehousing space for e-commerce translates to 8 SF of vacant retail space �Space planning and site selection utilizing real-time data

�Read more on retailers using mobile data here

https://download.transwestern.com/public/corporate/Insights/1Q2017_HTML/Insights_FullScreenTemplate_1Q2017.html#section5


Commercial impact: �Robotics impacts tenant survival �Tenant demand changing rapidly �“When” is as key as “what” �Growing sophistication of service providers required

TECHNOLOGY BOOM


3. GENERATIONAL DISRUPTION


GENERATIONAL DISRUPTION

�Baby Boomer generation is now smaller than Millennials �Growing number of decision-makers are under 40 �Boombers remain engaged and productive well past traditional retirement age of 65 �Millennials will follow similar path to Boomers, just 10 years later


Commercial impact: �Older properties may not meet demand of either group �Suburban communities will thrive �Live/work/play will be the key theme �Office design challenged to meet demands of both workforce groups

�Read more on generational preferences in this report

GENERATIONAL DISRUPTION

https://download.transwestern.com/public/corporate/TAS/Cool%20Factor_FINAL.pdf


4. RETAIL DISRUPTION


RETAIL DISRUPTION

�“Experiential” retail driving customer traffic �The U.S. has been “over-retailed” for decades

�40% more shopping space per capita than Canada, 5x more than the U.K., and 10x more than Germany

�Not facing a retail apocalypse �Restaurants and service-oriented outlets booming �Grocery-anchored centers are steady – for now


Commercial impact: �Tenant type and demand radically shifting �Declining returns forcing investors to reduce allocations �Online retailers opening brick-and-mortar locations �Many malls struggling to survive, but present a huge repurposing opportunity

�Read this report for more on redeveloping malls

RETAIL DISRUPTION

https://download.transwestern.com/public/Media/Mall%20Reuse%202017.pdf


5. INFRASTRUCTURE INVESTMENT


INFRASTRUCTURE INVESTMENT

�Unclear when or if government will move forward �Big opportunity for private sector to launch projects � Increased movement of goods is straining existing system �Many projects will not generate revenue necessary for investors to provide capital �Public transit has been zeroed out of federal budget �Read this report on link between CRE and infrastructure

https://download.transwestern.com/public/Media/Cranes%20and%20Lanes_The%20Link%20Between%20Infrastructure%20and%20CRE.pdf


Big opportunities in: �Fund management �Rights-of-way, land and planning �Ports and communities supporting improved global transportation routes �Public/private partnerships for community improvement (parks, airports, roads, etc.)

INFRASTRUCTURE INVESTMENT


6. HOUSING: THE BIG MISMATCH


HOUSING: THE BIG MISMATCH

�Lack of inventory triggered spike in prices, resulting in declining affordability �High-paid workers caused prices to increase on once affordable rental and for-sale housing �Developers not meeting “starter home” demand �Baby Boomers unable to downsize from lack of large multifamily units and buyers for large suburban homes


Commercial impact: �Challenges aligning affordabilty with live/work/play �Cost of land and materials forces higher price points �Buyers/investors challenged to buy or build properties that meet size and design needs of different generations �Opportunities in affordable and workforce housing

HOUSING: THE BIG MISMATCH


7. LOST DECADES OF THE MIDDLE CLASS


LOST DECADES OF THE MIDDLE CLASS

� Incomes have yet to recover to pre-recession highs �Jobs under pressure from automation and outsourcing �Disenchantment linked to rise of populist leaders

�Large proportion of voter base disappointed with what governments and business elite have delivered

�Retail closures are those serving primarily middle class


Commercial impact: �Stagnant wages leading to less disposable income �Middle market retail store closures �Continued interest in renting over buying, creating opportunity for multifamily �Opportunity in high-end retail and housing for wealthy �Rents will be constrained

LOST DECADES OF THE MIDDLE CLASS


8. REAL ESTATE’S EMERGING ROLE IN HEALTHCARE


REAL ESTATE’S EMERGING ROLE IN HEALTHCARE

�U.S. spends $3 trillion per year on healthcare – $10,000 per person �Outcomes and efficiency compare poorly to other developed countries �Smaller facilities – clinics, urgent care, ambulatory surgery centers – reduce costly hospital visits �Buildings being designed to promote health and well-being


Commercial impact: �Business uncertainty over healthcare may affect leasing �Uncertain demand inhibits real estate investment �New retail and office leasing opportunities �Occupants and investors demand better health and productivity from buildings �Opportunity for micro-hospitals (read more here)

REAL ESTATE’S EMERGING ROLE IN HEALTHCARE

https://www.usnews.com/news/healthcare-of-tomorrow/articles/2017-04-24/micro-hospitals-offer-an-alternative-health-care-model-for-local-communities


9. IMMIGRATION


IMMIGRATION

�Political divide on jobs lost to illegal immigrants vs. lack of qualified workers �Development projects stall due to labor shortages � Immigrants contribute new households – usually as renters, increasing demand for multifamily � Long-term constraints on immigration will limit economic growth with less labor to support aging population


Commercial impact: �Restrictive policies block access to skilled workers � Innovation suffers �Real estate tech and finance firms hard hit �Hampers multifamily development, rents, home sales �Negatively impacts home/rental unit size as immigrants typically have larger families

IMMIGRATION


10. CLIMATE CHANGE


CLIMATE CHANGE

�New report doubled the 2013 forecast of estimated potential sea-level rise �Values of all properties will be affected if airports, infrastructure, and key services are flooded �State and municipal reports assessing population, buildings, infrastructure and land threatened by rising sea levels are available for employers and investors


Commercial impact: �Properties in potential future flood zones will decline � Information access will drive value changes �Mortgage and insurance access will be game changers �Properties outside flood zones will also be affected �Tenants concerned about flooding or related tax consequences may relocate

CLIMATE CHANGE


ON THE WATCH LIST

Other emerging issues worthy of watching closely: �Tax reform and monetary policy �Other policy issues �Cannabis

For the full report, visit the Counselors of Real Estate website.

https://www.cre.org/external-affairs/alert-the-cre-2017-18-top-ten-issues-affecting-real-estate/

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