Darren Currin, The Daily Record Newswire
One of the more interesting lists released each year for the residential and commercial real estate industries is the Top 10 Issues Affecting Real Estate compiled, researched and released by the Counselors of Real Estate.
The list for 2015 and 2016 that was recently released offers few surprises but does touch on some key issues that could positively and negatively affect both the national and local markets.
The number one issue was demographic shifts. The list noted that millennials and retiring baby boomers would have the greatest effect on the industry. Their decisions in the coming years will determine trends in both the single-family and multifamily housing markets, as well as in office and retail properties. There could be some big changes ahead in all sectors of real estate because of these two demographic groups.
The second issue was excess capital supply. This is one of the driving factors causing the increase in local commercial property sales. The authors of the list said investors, including international investors, are now moving beyond the primary markets and into non-gateway markets. They listed multifamily as the most desirable property type for investors.
Rising interest rates were ranked third. While interest rates still remain low and should remain low for the short term, savvy investors are preparing for the inevitable rate hike. This is another factor spurring the onslaught of demand for commercial properties, as investors want to lock in rates now before it is too late.
At number four was global instability and currency devaluation. Obviously, this is a trend that has no immediate effect on the local markets, but warrants watching. While the dollar is still strong, the instability in the global markets could have ripple effects back in the states.
Urbanization was listed at number five. This trend has fueled the substantial rise in urban housing development in the form of apartments and condos. It also forced an increase in office development as more companies are moving to the central business district.
At No. 6 was energy. The Counselors said the drop in oil prices has negatively affected both large and small U.S. producers. This has led to increased layoffs and a reduction in spending. The projected length of this downturn is undetermined, but Japan's high demand for energy may change the dynamics.
The gap between rich and poor was No. 7. According to the report, income inequality is driving new opportunities in commercial real estate in serving diverse markets with discounted retail offerings, while also contributing to a rise in luxury retailers. This gap can also create opportunities for high-density multifamily and affordable housing, as well as place making where vacant lots or undesirable neighborhoods are transformed into urban destinations. It has also caused more people to choose renting over home ownership.
Infrastructure was No. 8. The condition and development of the nation's infrastructure in terms of roads, bridges and utility lines lag behind other countries. Furthermore, many communities don't have resources to invest in infrastructure. While this can limit development it can open to the door for more public-private partnerships.
Real estate technology and crowdfunding was ranked ninth. The Counselors said real estate is one of the most dynamic sectors for technology innovation, which positions the industry for disruption. Furthermore, crowdfunding could open to the door wide to all sorts of new investors and sources of capital.
The changing retail model rounded out the list at No. 10. The retail market is in a state of flux. Demographic groups are transitioning, consumer purchasing power has decreased and urbanization is changing what are deemed as the best locations. The good news is, despite the rise in online sales, demand for physical stores is strong. Successful retailers are those that can combine the traditional with e-commerce and reduce store sizes.
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Darren Currin is an analyst with ARA Newmark. He may be reached at (405) 476-0164 or dcurrin@aranewmark.com.
Published: Fri, Aug 07, 2015
