Wondering what threats await real estate this year (and in the future)? Scott Muldavin, chair of the Counselors of Real Estate (CRE), ran down his annual list at this year’s National Association of Real Estate Editors (NAREE) annual conference in Denver.
Real Estate Threat No. 1: Political Polarization and Global Uncertainty
The U.S. is seeing a rise in the Consumer Price Index (CPI), Muldavin said, and continued separation by income. But political polarization and global uncertainty are directly affecting communities. Interest rates are going to rise (the Federal Reserve Bank recently raised the federal funds rate again), which, he said, will ultimately make mortgages less affordable.
“Communities are becoming increasingly polarized, which will cause all sorts of changes for metropolitan areas,” he added.
Real Estate Threat No. 2: Technology Boom
In 2016, more than $2.6 billion was spent by consumers for online real estate applications, and that amount will continue to rise. Technology will change every aspect of buying, selling and managing every facet of commercial and residential real estate, and Muldavin says it will happen sooner than you can imagine.
“On the residential real estate side, we’re seeing the rise of smart homes with high-tech thermostats, lighting and security systems, as well as faster wireless access and bandwidth being built into new communities and homes. Homeowners want plug and play,” he observed.
One thing to watch for: Self-driving mass transit systems, which could mean that suburban homeowners will benefit from new modes of transportation that make their properties more accessible.
Real Estate Threat No. 3: Generational Disruptions
“We’re at a demographic inflection point,” Muldavin noted. “Millennials are a bigger population bubble than the boomers. People from both population groups are now living and working together.”
In the residential arena, some of the effects of the generational disruption include having younger renters and buyers with reduced income limits. Millennials (and Generation Z) are marrying later, and moving to the suburbs later. Older owners are downsizing, selling and moving back to cities. But boomers want bigger in-town condos, while developers have been building smaller units for the younger demographics. The design and amenities of current properties for sale are often a mismatch when different generations live together.
One big effect of the generational disruption is that seniors in some areas are having trouble selling. They have bigger homes for sale, but no one wants to (or can afford to) buy them.
Real Estate Threat No. 4: Retail Disruption
According to Muldavin, between 1970 and today, malls have grown at twice the rate of the U.S. population. “The U.S. has four times the per capita retail space compared with Canada, and 10 times per capita space compared with Germany. We have too much retail. Half of all U.S. households are members of Amazon Prime.
“There’s a behavioral change going on with how consumers relate to real estate,” he added. “Retail isn’t dying, but millennials like experiences.” That means retail will have to change dramatically.
Muldavin noted that up to 30 percent of malls are expected to close in the next few years, and commercial investor returns are down as retail bankruptcies are at all-time highs. Big bricks-and-mortar department stores are facing significant problems. “On the flip side, there is a huge repurposing opportunity for developers who are innovative,” he added.
Muldavin also noted that “we’re seeing Amazon-type online retailers opening bricks-and-mortar (stores). It’s omnichannel retailing. You sell everywhere to everyone.”
“In the next decade, the demand for walking distance retail will continue to trend up; unique destinations are in high demand, and will be even more so. Retail disruption is a residential value determinant, but retail is resilient. We’ll see it continue to transition to a more experiential retail environment,” he said.
“One thing to watch out for: The ‘Walk Score’ is more important, and experiential retail has a higher value to residential,” Muldavin noted.
Real Estate Threat No. 5: Infrastructure Investment (or lack thereof)
According to Muldavin, the current infrastructure proposal from the federal government is for $200 billion over 10 years. But 80 percent of that is to be provided by state and local communities. Money for public transportation has been zeroed out of the proposal.
“Mass transit support, which is so important to real estate values and real estate investors, is being zeroed out. Mass transit is disappearing, and it’s a sea change,” Muldavin said, adding that the losers will be any infrastructure project without a private funding source.
By Ilyce Glink and Samuel J. Tamkin, Tribune Content Agency. Ilyce Glink is the creator of an 18-part webinar+ebook series called “The Intentional Investor: How to be wildly successful in real estate,” as well as the author of many books on real estate. She also hosts the “Real Estate Minute,” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.