#172 – Inside Our Industry – Top Ten Issues Impacting Real Estate

We are keenly aware that going into 2024, the economy has uncertainty. As an industrial developer, our planning for that uncertainly has already begun, as we agree wholeheartedly with this Top Ten list shared on ConnectCRE.com.

Top Ten Issues Impacting Real Estate
ConnectCRE, Amy Wolff Sorter, October 12, 2023

With Q4 underway, many are considering trends and issues that could impact commercial real estate in 2024. To that end, the Counselors of Real Estate, consisting of global commercial property advisors, released its annual report, “The Top Ten Issues Affecting Real Estate.”

“As the real estate industry faces an extraordinary era of unpredictability, the effect of political unrest and global economic health is the leading concern of the 1,000-member organization in its 2024 report,” the report noted, along with office occupancy/valuations, housing shortage and artificial intelligence.

The top 10 issues are as follows:

1. Political unrest and global economics – Geopolitical unrest continues with an ongoing war in Ukraine and the more recent Hamas-Israel war. Closer to home, mixed economic signals contribute to overall uncertainty, as are inflation, high interest rates, bank stress and tightening liquidity.
2. Return-to-work versus remote work – Though 58% of workers are back in the office full-time, hybrid work is now a thing. This means corporates are focused more on “destination-worthy” office space with necessary amenities. Meanwhile, the population shifts to the suburbs are increasing demand for suburban office space.
3. Housing shortages and affordability – The U.S. continues facing an overwhelming housing shortage (especially affordable housing) due mainly to years of underbuilding. More households are turning to renting as higher costs are connected to home ownership.
4. Data and artificial intelligence – The report noted an “incredible need to measure things accurately” and that “access to real-time data is more and more critical to investors in a dynamic market . . .” The report also suggested that CRE should pay attention to proptech start-ups that improve data collection.
5. The ongoing labor shortage – The labor market remains strong. Why? Because there’s a lack of “skilled, willing and able workers,” the report said. On top of this, there are still questions about whether the U.S. economy will experience a soft landing or recession. “Jobs drive demand for real estate,” according to the report. “And populations also shift to where jobs are located.”
6. Population migration – Speaking of relocating populations, people are increasingly looking for areas where housing is more affordable and the cost of living more realistic. As such, both populations – and jobs – are shifting to low-cost, low-regulation states. Specifically, “the U.S. is becoming less CBD-centric and more suburban or secondary market-centric,” the report indicated.
7. Liquidity and interest rates – Liquidity is tightening as banks are pulling back from CRE exposure. At the same time, the Federal Reserve continues increasing the Effective Federal Funds Rate. This has been “shaking up both commercial and residential real estate markets and creating a drag on transaction activity,” the report said.
8. Remaking supply chains – Supply chain disruptions experienced during the pandemic have led to the planning and building of “more resilient, efficient supply chains.” The report noted that the central area of America’s logistics infrastructure is the Golden Triangle, which runs from the Great Lakes to Texas (on the west) and the mid-Atlantic states (on the east). Furthermore, the value of real estate, moving forward, will be where it is regarding infrastructure, logistics and a trained labor force.
9. Property price resets – As the cost of capital increases, cap rates and property values decrease. However, according to the report, “the pricing reset the market has been waiting for has been slow to materialize given the freeze in the transaction market with few reliable comps.” Where prices will settle is anyone’s guess, making it difficult for buyers and sellers to determine appropriate values. Counselors of Real Estate anticipate that the pricing question will continue into 2024.
10. Aging infrastructure and repair needs – The passage of the Bipartisan Infrastructure Law as part of the Infrastructure and Jobs Act of 2022 will provide funds to improve America’s aging infrastructure. But the report questions “what types of infrastructure are truly needed to sustain U.S. prosperity throughout the 21st century.” Many consider infrastructure financing a “drop in the bucket” for what’s needed. The report suggested that infrastructure financing shouldn’t be the purview of only the federal government, with local government, private corporations and non-profits also participating.

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