Highlights from The Counselors of Real Estate 10 big-picture themes likely to have the greatest influence on real estate in the coming year.
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Each year, members of The Counselors of Real Estate vote on the 10 big-picture themes likely to have the greatest influence on real estate in the coming year. Although the Counselors’ 2023–24 list was released back in October, many of these themes have only magnified in importance. In the organization’s published report, CRE members with subject matter expertise offer their take on the issues. Here are highlights:

1. Geopolitics and the Global Economy

The conversation has shifted from a focus on global risks such as gas prices and commodities to pressing concerns about economic instability, according to Timothy H. Savage, Ph.D., CRE, and Constantine Korologos, CRE, both clinical assistant professors at the Schack Institute of Real Estate, New York University.

"The state of capital markets is creating a strong undertow to the economy,” Savage and Korologos say.

The list of stressors includes inflation, high interest rates, banking debt, and tightening liquidity, as well as the influences of artificial intelligence, migration trends, hybrid work and the reconfiguring of supply chains.

One of the highest risks, the authors say, is potential bank failures: “Loan delinquencies are now higher than they were at the start of the pandemic,” they warn, “and the expectation is that there are more defaults coming, especially in the office sector.”

2. Empty Offices

At the peak of the pandemic, 62% of all office workers were working remotely. Now, 58% of workers are now fully back in the office, while 29% are working hybrid schedules and 13% are fully work-from-home, according to WFH Research.

“As the future of hybrid work continues to unfold, the near-term focus is centering on calibrating hybrid schedules and setting new expectations for work that needs to be done in person,” says Maureen Ehrenberg, CRE, CEO of real estate consultancy Blue Skyre.

Offices will need to be deemed “destination-worthy” and experiential, allowing people to do different types of work throughout the building, with sustainable, automated, and digital components and amenities that employees consider to be worth the commute.

“Those buildings in the line of fire are older B and C properties in central business districts, particularly those in poor locations and those that face costly capital projects for repositioning and decarbonization requirements,” Ehrenberg says.

“Now is not the time to sit back and wait and see how hybrid work trends play out,” she adds. “If the property doesn’t check the box in some critical way—location, access, convenience, tenant amenities or even an amazing view—owners need to start thinking about alternative strategies.”

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3. Housing Shortage

The U.S. continues to face an overwhelming housing shortage that has resulted from decades of underbuilding, says Paula Munger, CRE, vice president of research with the National Apartment Association.

“Progress will be bumpy,” Munger says. “Now that the market is seeing improvement in supply chain and inflation, developers are dealing with higher interest rates and higher construction costs that are making it more difficult to secure financing along with general economic uncertainty that is causing some developers to push the pause button,” Munger says.

In addition, uncontrollable operating costs, such as insurance and property taxes, will continue to impact bottom lines.

4. AI 3.0

Now that the genie is out of the bottle on AI, commercial real estate pros are contemplating its function and purpose for the industry.

Today’s advanced version of AI—“AI 3.0”—is integrating data analysis with new forecasting techniques, including probabilistic modeling and causation modeling. “Will a tenant renew in year three, four or five? We want to be able to predict with great accuracy what the most probable outcome is likely to be,” Savage says.

Ideally, AI 3.0 will merge massive databases into one clean data source that includes alternative data sets, such as sentiment data collected from chatbots, with traditional rent and vacancy data.

Proptech startups also will be reimagining the idea of data collection, Savage says. “They’re incorporating mind-boggling amounts of data, and they’re adopting probabilistic frameworks to think about the future.”

5. Labor Dynamics

“Everyone, everywhere, in nearly every sector is reporting that it is difficult to find skilled, willing and able workers,” says Kathleen Rose, CRE, president of Rose & Associates Southeast Inc. Job market data consistently shows more job openings than available workers.

The dynamics go beyond demographics to include changes in technology, migration trends and worker behavior, she says.

“Employers are following the people and paying close attention to migration shifts. Traditionally, older generations set up their lives around where their job was located. Younger generations, including X, Y and Z, are . . . reversing the order, choosing their lifestyle and where they want to live first and the job second.”

6. Migration’s Impact

A great migration shift is being fueled by a fundamental human need: housing affordability, says KC Conway, CCIM, CRE, principal and founder, KCnomics, LLC. Businesses are following suit, moving out of high-cost, high-regulation states in favor of the Sun Belt and the interior of the country.

“Companies are looking for locations that have the workforce and the logistics infrastructure—rail, interstates and access to ports,” says Conway. Future plants to build electric vehicle batteries will be concentrated from the Great Lakes to the South. “Urban areas with density and lack of affordability are seeing outflows, and that trend is not likely to reverse,” he says.

7. Domestic Economy

“Because real estate is so focused on the ramifying effects of the housing economy, it is not a surprise to feel that we are choking on [the Federal Reserve’s] policy. But it’s important to remember the Fed’s dual mandate: price stability and full employment,” says Hugh Kelly, Ph.D., CRE, principal of consultancy Hugh Kelly Real Estate Economics.

“While it’s always tempting to second-guess public officials... the real estate and financial industries need to look in the mirror, too. How is it that banks, whose primary business involves the management of interest rate risk, found themselves unprepared for the consequences of Fed tightening, its squeeze on spreads and the potential for disintermediation by depositors?” Kelly says.

“Likewise, how is it that commercial real estate investors accepted cap rate compression to the point where risk premiums virtually disappeared? In many ways, we once again find ourselves with Pogo’s confession: ‘We have met the enemy and he is us.’”

8. Supply Chain and Logistics

The galvanization of a more resilient, efficient supply chain will continue, coinciding with a reshoring boom of manufacturing focused on the interior and southern states, says Conway.

With over half of the U.S. GDP produced in “The Golden Triangle”—the Great Lakes to Texas to the mid-Atlantic hub—Conway predicts manufacturing companies will begin relocating to be near new FedEx, Amazon and Walmart e-commerce fulfillment locations in cities such as Memphis, Tenn.; Wichita, Kan.; and Huntsville, Ala.

“Cities that are going to benefit from that shift are those connected to a port by rail,” he says. “Cities that don’t have the logistics infrastructure and don’t have that connectivity don’t have a chance of being part of this new e-commerce economy.”

“A decade ago, about 60%–65% of all containerized goods were flowing through the West Coast ports of Los Angeles and Long Beach with 30% to 35% coming from the East Coast and Gulf Coast ports. Now that flow of goods has flipped,” he says.

9. Market Pricing Reset

Although markets are past their peak for the cycle, it remains to be seen where prices will settle in 2024.

“Although there is some acceptance [among sellers] that prices have dropped... owners are opting to hold rather than sell in what could be a trough of the market,” says Del Kendall, CRE, senior director of SitusAMC’s appraisal and consulting operations. “So, there is a bit of a Catch-22 and a big barrier to assessing true values.”

Debt coming due before the end of 2025 will have “big implications for the transaction market,” Kendall says.

“Will refinancing challenges force lenders holding the debt—largely banks—to mark to market,” Kendall asks, “which will have a cascading impact on commercial real estate and financial markets?”

10. Infrastructure Investment

The need for robust infrastructure is now being met with significant funding through both the $1.2 trillion Bipartisan Infrastructure Law and the Inflation Reduction Act, which allocates $783 billion to improvement projects.

The country is legislatively committed to investing in major infrastructure projects. “Will investment be made with a... traditional view of infrastructure, with spending on megaprojects, such as highways, bridges, and pipelines?” asks Korin Crawford, CRE, executive vice president with Griffin Swinerton. “Or will investment focus on forward-looking infrastructure needed to support new technologies, changing societal needs, and volatile environmental conditions?”

One opportunity, he suggests, lies in reimagining infrastructure the same way we are reimagining how we deliver products and services, with smaller-scale, decentralized facilities, powered by alternative energy sources.

See the full report, 2023–24 Top Ten Issues Affecting Real Estate.

The Counselors of Real Estate, an affiliate of the National Association of REALTORS®, is an international organization of approximately 1,000 credentialed real estate problem solvers practicing in more than 60 disciplines across all asset classes.


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