By Carole Hawkins, [email protected]
Millenials and Baby Boomers — where and how they’ll choose to live — will shape real estate decision making the most in the coming year.
That’s according to the Counselors of Real Estate, which unveiled its top 10 issues affecting real estate. CRE Chairman Noah D. Shlaes presented the list in June at the National Association of Real Estate Editors conference in Miami.
An international, invitation-only membership organization, the counselors provide advice on complex real estate and land matters. The annual list reflects questions being posed by their real estate clients and the issues behind those questions.
This year’s list reflects a higher degree of economic uncertainty than in years past, said Shlaes, who is a senior managing director with Newmark Grubb Knight Frank’s Global Corporate Services group.
Anticipation of rising interest rates, global instability, and excess capital flowing into the U.S. were all leading concerns among membership.
The top 10 issues that will affect real estate in 2015-16 are:
1: Demographic shifts
Baby Boomers (born between 1946 and 1964) and Millennials (born between 1980 and 2000) will have the greatest impact on real estate through the lifestyles they choose in coming years.
Millenials will decide whether they will buy or postpone buying homes and prime locations will be those with amenities and walkability. Boomers will choose the homes where they will age in place, whether that means downsized homes, senior communities or assisted living.
The buying power of both groups will shape the economy going forward and drive decisions across virtually all real estate sectors.
2: Excess capital supply
Because of current instability around the globe, the U.S. is considered a safe haven for foreign investments. The investments have gone to major cities, but are now bleeding into some non-gateway and edge cities too.
Also, there’s deeper penetration into niche cities, selected by major companies and undergoing place-making so the company can better manage labor markets.
In residential real estate, there’s very heavy investment going on, especially in multi-family, because residential is easily understood by overseas investors.
3: Rising interest rates
If interest rates rise, they will go up very slightly. Unlike previous years, the possibility of a rate hike is being taken very seriously by members.
The impact on real estate would be significant, because the long contractual relationships that drive income make it hard for the industry to respond quickly.
In residential real estate, home sales will slow down. But, if Millennials jump in and buy before interest rates rise too far, it could create a second wind for homebuying.
4: Global instability and currency devaluation
This summer it was Greece, before that it was the Ukraine, next it might be the Middle East. Instability and currency devaluations abroad affect markets here.
By virtue of weakness everywhere else, the value of the U.S. dollar increased 20 to 22 percent this year, even though the domestic economy has only grown 2.4 percent for the last six years.
The result is a lot of money flowing into the U.S. In residential real estate, non-U.S. investments are driving pricing in some markets.
5: Urbanization continues
Urban populations are growing around the globe. And the desire to reside in “live-work-play” and “walkable” communities is not limited to young professionals.
Older generations are also drawn to them. Shopping malls have skewed to two successful models — offering either luxury or discount products.
Home resales have suffered in some suburbs, when young families don’t necessarily want the homes of a past generation of suburbanites. There has also been a rise in corporate relocations to cities from the suburbs as a strategy to attract young urban professionals.
6: Energy
Oil prices dropped this year, due to production increases, both overseas and at home. Small producers were driven out of business, and large producers consolidated positions to take advantage of a later price recovery.
For real estate, it’s a regional issue, affecting places where fuel deposits are found in the ground and also, places that serve them, like Houston.
Boom towns have turned into bust towns, though energy-producing communities are somewhat accustomed to such cycles. Those markets are seeing unemployment and declines in rent.
7: Gap between rich and poor
Income inequality is causing the disappearance of the middle class and for property that serves the middle class.
It’s created opportunities at both extremes — for discount stores and for luxury retailers, for high-density multi-family, affordable housing and for “place-making,” turning vacant or undesirable neighborhoods into an appealing urban “destinations.”
High-end homes have become the currency of the uber-wealthy. At the low end, choices diminish when peoples’ income no longer match market offerings. There’s been a shift toward rental and a loss of confidence in the ability to build equity through owning a home.
8: Risk of failing infrastructure
Aging roads, bridges, and power, gas and water lines continue to be a problem. The cost of actual repair is becoming an issue in underwriting projects. When corporate clients look for new sites, they want uninterrupted power and rapid reliable logistics. The concern has accelerated private and international investment in major infrastructure projects.
9: Real estate technology and crowdfunding
Venture capital has poured into real estate technology startups and now crowdfunding could increase opportunity for small investors as well.
In 2013 investments in real estate technology startups grew by $241 million. This means new products.
The process of filling out forms repeatedly is over. Consumers get information quickly and expect a rapid response.
The Realtor’s role has changed from finding buyers a home to helping them filter through information that is hard to interpret and occasionally inaccurate.
10: The changing retail model
Shopping malls and the half-day shopping expedition are being replaced by a more immediate experience a lot closer to home.
Also, competition from the Internet means it’s not enough for stores to simply have product — shoppers expect interaction. In residential real estate, there’s a shift from suburban to urban-type malls— even in the suburbs.
Shopping centers feel more like downtowns and include a focus on transit. The desire for urban walkability is becoming a factor in people’s home search.