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The Top 10 Issues Affecting Real Estate: CRE Chair Tells NAREE Political Polarization, Immigration Among Big Issues Facing Realty

Scott Muldavin

DENVER – Global uncertainty and political polarization are expected to heavily impact the real estate sector this year and next, according to The Counselors of Real Estate (CRE), the invitation-only professional association for the industry’s real estate advisors.

“Real estate is impacted as uncertainty about changes to trade, travel and immigration policy threaten cross-border investing, hospitality properties, retail and manufacturing supply chains, and other areas,” said Scott Muldavin, CRE chair Wednesday. “Middle class home ownership will also be impacted as interest rates rise.”

In the opening keynote address at the National Association of Real Estate Editors (NAREE) annual conference in Denver, Muldavin — president of San Rafael, Ca.-based real estate advisory firm Muldavin Company – said other issues include technology, generational disruptions, retail disruptions, infrastructure investment, housing (the big mismatch), lost decades of the middle class, real estate’s emerging role in health care, immigration and climate change.

“In real estate, we love risk and we can price risk and mitigate risk,” he told NAREE attendees. “What we don’t like is uncertainty. Fundamentally the issue is delay and uncertainty and inability to move.”

Muldavin emphasized to the NAREE audience that many of the issues are interconnected and reflects both global uncertainty and seemingly relentless disruption in the world economy and involve multiple real estate sectors.

“Even at the local level there is continuing and intensifying polarization between political parties, making it virtually impossible for representatives to find the common ground needed to move forward,” he said. “If decisions cannot be made because compromise is viewed as weakness and if people with differing points of view have difficulty being in the same room, how will eroding infrastructure be addressed, affordable housing be built, the wellbeing of the planet be considered as the built environment expands.”

Among other concerns expressed by real estate entrepreneurs:

Technology. An ongoing wave of commercial real estate technology innovations are expected to change the way real estate is bought, sold and managed, noted Muldavin. “Robotic learning as opposed to configuration and programming is a major acceleration of automation of the workplace,” he continued. “And when autonomous vehicles cost less than cars, it will impact parking lots, garages, and much of our streetscape.”

Generational Disruption. Boomers’ and Millennials’ divergent views of where they live, work, and play increasingly impacts the property markets. A significant number of today’s real estate decisions, are made by people under the age of 40 although studies project that Millennials will ultimately behave in a fashion similar to Boomers….but a decade later.

Retail Disruption. The trend toward transforming retail into “experiences” continues and is offsetting shrinkage in bricks and mortar stores. 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“Retail is not dying, it’s just changing,” Muldavin added.

Infrastructure Investment. While both major political parties appear to support substantial investment in infrastructure, it remains unclear when and if the Government will be in a position to move major initiatives forward. “It is clear that the need for infrastructure investment is critical,” Muldavin said. “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.

Housing: The Big Mismatch. A current lack of inventory has generated a spike in home prices, resulting in declining affordability, particularly in lower income sectors.  An especially serious issue is the growing affordability gap and housing available in locations with significant job growth.  “Boomers want larger apartments than the ones that are being created in marketplace, designed for millennials,” Muldavin said.  “There is a huge mismatching in workforce housing especially in places where new jobs are being created.  “There are huge real estate opportunities. We do have a cost challenge in places were jobs are being created. How we solve it will be really interesting and will be huge opportunities for whoever solves it.”

Lost Decades of the Middle Class. Middle class incomes have yet to recover their pre-recession highs — $57,403 in 2007 — and are actually hovering below inflation-adjusted levels from almost two decades ago — $57,909).  Battered by automation and outsourcing, middle class jobs are still under pressure as the U.S. economy transitions from manufacturing to services.

Real Estate’s Emerging Role in Health Care. While political polarization is making it difficult to address quality and access problems, the real estate industry has emerged as a major player to cost effectively improve people’s health.  Medical services are increasingly being delivered in clinics, urgent care facilities, and ambulatory surgery centers, reducing costly hospital visits.

Immigration. Companies ranging from tech firms to real estate finance companies are affected by the lack of qualified workers; development projects in high supply growth MSAs such as Denver stall because of labor shortages, and demographers point to immigrant groups as the source of new household formation and favorable trends in population growth that will benefit the U.S.  The problem with immigration and polarization is that we don’t have a comprehensive strategy, so we are marginalizing 11 million people,” he said. “We are threatening our tech industry, which depends on immigration. Technology leasing was 25% of leasing market last year, not just San Francisco or Raleigh N.C. It is everywhere. Immigration has been huge boom for residential market in Texas an other places.”

Climate Change. Value implications extend well beyond those properties that might be directly affected by flooding.  For example, access roads and key services required may 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.  “Predications are hard, especially about the future,” he added.

The CRE 2017-18 Top Ten Issues Affecting Real Estate list is developed annually by members of the CRE organization’s External Affairs group, led by research executive and author Peter C. Burley, CRE, Chicago and Victor Calanog, Ph.D., CRE, chief economist and senior vice president, Reis, New York City.  The Counselors’ 1,100 members around the world undertake an extensive collaborative dialogue on current issues and trends to identify the final list.

 

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