December 16, 2015-January 5, 2016 —
COLORADO REAL ESTATE JOURNAL
— Page 17AA
T
he Counselors of
Real Estate annually
publishes a list of the
top 10 issues impacting real
estate investment, as viewed
by the members. The list for
2015-16 is presented here.
n
Demographic shifts.
Two key groups – large
numbers of retiring baby
boomers (born between
1946 and 1964) and the next
large population wave, the
millennials (born between
1980 and 2000) – will have
the greatest impact on real
estate through the lifestyles
they choose in coming years.
This casts a spotlight on
housing in all its forms: For
boomers, the homes in which
they choose to age in place,
downsized homes, senior
communities or assisted
living are key; for millennials,
affordability and preference
for amenitized, urban
locations are driving factors.
n
Excess capital supply.
Funds continue to flow
from outside the U.S. to
purchase U.S. real estate.
The supply is driven by
sovereign economies that
have high savings rates, a
shortage of mature financial
markets and few safe assets.
The investment rate is
approaching record highs,
putting upward pressure on
asset pricing. While major
cities are preferred by foreign
capital, some nongateway
cities also are experiencing
higher levels of investment.
n
Rising interest rates.
Interest rates have been at
near-historic lows – and the
general view is that they will
stay that way for a while
longer. But savvy investors
and homebuyers alike are
preparing for rising rates.
When rates rise, cap rates
and discount rates also
will rise, thereby devaluing
assets. An interest rate rise
also could slow home sales.
Rising rates will cause higher
mortgage payments, thereby
decreasing homebuyers’
choices.
n
Global instability and
currency devaluation.
The
U.S. dollar remains strong
but intentional currency
devaluation in many other
countries makes U.S. exports
less competitive. Investment
from non-U.S. sources helps
fuel the U.S. real estate
market, but event risk should
be considered – “hot spots”
of conflict are continually in
the news as is cyber security
– and the global economy is
psychologically linked.
n
Urbanization.
Urban
population growth is a global
phenomenon. In the U.S., an
increasing desire to reside in
transit-served, “walkable”
communities is not limited
to young professionals; older
generations also are drawn to
such locations. Aging suburbs
and revitalized urban cores
result in a shift of economic
vitality to
areas once
thought
obsolete.
The past
few years
also have
seen a rise
in corporate
relocations
to cities
from the
suburbs as
a strategy
to attract
younger, urban professionals.
n
Energy.
The oil price
decline has negatively
impacted large and small
U.S. producers. Workforce
reductions and the associated
decrease in residents’ buying
power – while primarily
occurring among workers in
oil exploration and production
– impacts the greater
community, from retail to
housing to professional
services. Many “boom towns”
are now slowing; the duration
of this decline is unclear.
n
The gap between
rich and poor.
The
stubborn phenomenon of
under-employment and
wage stagnation in the
U.S. deserves a close look
relative to real estate. On
the commercial side, it
drives new opportunities to
serve diverse markets with
discounted retail offerings.
There also are development
opportunities in high-
density multifamily and
affordable housing, and in
“place making,” which can
transform a vacant lot or an
undesirable neighborhood
into an appealing urban
“destination” to serve diverse
populations.
n
Infrastructure.
The condition of U.S.
infrastructure is a broad
concern with no near-term
solution in sight. Inadequate
and aging roads, bridges
and power/gas/water lines
no longer meet the needs
of today’s communities and
businesses, let alone future
demand growth. Government
at all levels does not have
the available capital to
invest in infrastructure.
Development can be limited
because existing streets and
bridges cannot accommodate
increased traffic flow if
denser housing or mixed-
use developments are built.
Public-private partnerships
are increasingly viewed as a
viable financing mechanism.
n
Real estate technology
and crowdfunding.
Real estate is one of the
most fertile sectors for
technology innovation and
disruption. While venture
capital has poured into real
estate technology startups,
crowdfunding could increase
opportunity for smaller
investors as well. Diverse
audiences, including investors
and lenders, benefit from
new technology, as it speeds
information gathering and
expedites transactions.
Technology also has
dramatically changed the way
real estate professionals do
business.
n
The changing retail
model.
The retail sector
faces continuing challenges.
A 1985 best location may be
today’s abandoned property
as demographic shift and
new store formats speed
obsolescence. On the bright
side, despite steady increases
in online shopping, there
is still a role for physical
presence. Retailers that
incorporate e-commerce
elements, including fast
delivery options, are well
positioned, at least in the
short term. Store sizes are
shrinking, but many of the
attractive amenities of urban
shopping districts are now
being incorporated into
suburban shopping areas.
n
A comment about the
Denver area.
Affordability
and proximity to transit
options (preferably rail) are
the hottest issues of the day
here. Pressure on rents and
values has made Denver real
estate less competitive than it
has been historically. Tenants
suffer but property owners
don’t mind a bit. Job losses
in the energy sector are a
looming concern.
s
Ryan Toole, CRE
Principal, Alterra
Real Estate Advisors
LLC, Littleton
