The real estate state of the state: It’s complicated

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Published Date 10/30/2023

Sometimes a few hard facts can help you understand the reasons for things — especially for real estate. The problem is that factors affecting residential as well as commercial industries in general are multi-dimensional. While we all want to know when things will improve, no one has yet located that proverbial crystal ball.

Realtor Magazine’s Melissa Dittmann Tracey reports on the Counselors of Real Estate (CRE) annual list — a study that surveys 1,000 real estate experts to gauge the emerging issues that could have the most significant impact on all housing sectors, including the commercial market. She begins by saying, “Global unrest, economic uncertainty, and eroding home affordability are among the top issues facing the real estate industry over the next year, according to The Counselors of Real Estate’s annual report.”

The top issues affecting real estate over the next year include umbrella issues, such as political unrest and the global economy, the report says. It cites a turbulent economy, a sagging office sector, inflation, slowing GDP growth, high interest rates, bank stress, and rising geopolitical concerns involving Russia, China, and elsewhere.

Add to that the pandemic-driven shift to hybrid work. “Employers are recognizing that office space needs to become ‘destination-worthy’ to bring workers back,” says Tracey. “This may even include hosting special events with food trucks that coincide with in-office days or creating patios and outdoor seating to help with employee retention.” Otherwise, it could mean exploring the reuse of obsolete office buildings as conversions into residential units, senior housing, health care facilities, or hotels.

The severe housing shortage is due in part to decades of under-building, the report notes. The 5.5 million units housing deficit is due in part to higher interest rates and ballooning construction costs, complicating calls for more multifamily units, while the market for single-family homes also is facing higher costs.

Believe it or not, artificial intelligence (AI) plays a role as well. “Access to real-time data, improved analytics, and forecasting has become critical to investors as they weigh which properties they want to acquire, sell or hold,” says Tracey. “Artificial intelligence is helping to deliver that data, and recent advancements are being applied to real estate.”

Finding skilled workers remains a challenge, with fingers pointing at an aging population of boomers who left the workforce as well as new employment trends that have emerged among young professionals with unique views about the workplace. While jobs drive demand for real estate (populations shift to where jobs are located), younger generations are choosing their lifestyle first and their job second—a reversal from previous generations. This is forcing employers to take note of migration shifts. A preference for entrepreneurship, remote, and/or contract work complicates this further.

A great migration of sorts has also been taking place. Americans are relocating away from less affordable urban areas to more reasonably-priced locales such as Ocala, Fla.; Auburn, Ala.; Surprise, Ariz.; Madison, Wis.; and Myrtle Beach, S.C.

The economy, interest rates and inflation are truly the trifecta, however, now being dubbed a “real estate Armageddon.” Rising interest rates and high prices are shaking up both commercial and residential real estate markets, contributing to a decline in transaction activity with urban economies particularly at risk. “We are still in the throes of the late COVID era, and the disruption on major urban economies has yet to run its course,” the report cautions.

Other factors include supply chain issues, and — notably — America’s aging infrastructure. While $1.2 trillion in the Bipartisan Infrastructure Law and $783 billion in the Inflation Reduction Act is there to help, CRE says it also creates an opportunity to rethink what types of infrastructure are needed. “For example, the report asks whether the country should spend $5 billion to upgrade one regional power plant, or take that $5 billion and build 20 smaller-scale decentralized power facilities,” says Tracey. She concludes by saying that the report also calls for local governments, cities, counties, private corporations, nonprofits, foundations and other associations to work together in helping to develop a new line of thinking about infrastructure at the local level that can support future population and economic growth.

RealtorMag, TBWS

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