There has been a shortage of housing supply for nearly two decades. Simultaneously, income stagnation for all but the highest income households has hampered access to affordable homes and rental units. Now, as Millennials and others move to cities and begin to gentrify aging neighborhoods (formerly de facto affordable housing stock), a crisis of affordability is beginning to emerge. As this issue develops over the next few years, key questions regarding solutions are “Who pays?” and “How?”
4. Generational Change & Demographics
The real estate market is currently influenced by four demographic groups: millennials, baby boomers, Gen X, and Gen Z. Some companies have already started to adjust work processes, location, and space utilization in response to demographic changes; the housing market will also have to respond to evolving demands. Even though the different groups have overlapping desires, there are important differences in timing and ability to pay.
5. E-commerce & Logistics
The U.S. Department of Commerce estimates that $123.7 billion of retail sales were conducted through online channels in 2018 Q1, accounting for nearly 30% of all retail commerce net of automobile and gasoline sales. As retailers cope with this changing landscape, several big name stores have announced waves of store closures, while others open new locations. Commercial real estate will be directly impacted by these shifts in retail strategy.
Chronic infrastructure underinvestment has elevated risk of short- and long-term economic drag. Despite some political efforts, there have been very few serious attempts to address America’s infrastructure maintenance problems. All real estate depends on well-maintained, reliable infrastructure, such as reliable utilities, efficient roads, and transit routes.
7. Disruptive Technology
The real estate industry, like the rest of world, is poised to adopt new technologies. E-commerce has drastically changed the retail sector, while ride-sharing companies are altering the need for residential garage space. Data continues to be commoditized, offering increased transaction transparency and enhanced demographic targeting. As owners and investors move to adopt these new technologies, they must decide which tools are most appropriate for their business and not rush toward “technology for technology’s sake.”
8. Natural Disasters & Climate Change
Natural disasters and climate change are expected to increasingly affect real estate over time, which in turn are pushing states and local communities to establish urban policies and regulate energy and sustainability in order to combat these environmental conditions. However, more legal measures at the state and local levels imply more hurdles for real estate developers, especially with respect to corporate relocations and expansions.
The RAISE Act (Reforming American Immigration for Strong Economy) restricts legal immigration, dropping the number of green cards from the present 1.1 million to 500,000 annually. As the U.S. faces a long-term labor shortage due to aging population, stifling legal immigration will have implications for the economy at large as well as for real estate.
10. Energy & water
A combination of higher energy prices and higher real estate financing costs is expected to create optimistic growth forecasts. Additionally, the population within urban centers across the U.S. is likely to increase and thus put pressure on existing real estate centers to be able to provide water and other essential resources.