Top 10 Issues Impacting Real Estate in 2015

The Counselors of Real Estate compiled a list of the top 10 issues affecting commercial real estate for 2015 to 2016. The Counselors consider independent research, qualitative feedback from members via polling and a member survey. While the list has been separated into 10 distinct issues, many are interrelated and affect multiple property sectors.

1. Demographic Shifts
Baby Boomers and millennials rose to the top of this year’s list because of the sheer number of people and the evolving needs of both groups. The lifestyle choices of both groups will impact housing in all its forms: retired Baby Boomers are choosing to downsize or move to senior communities/assisted living facilities. Millennials for the most part are postponing buying a home and gravitating toward urban, walkable communities. The ripple effect of these demographics will prompt adaptation from real estate and service sectors such as retail, medical facilities, office and entertainment venues.

2. Excess Capital Supply
Heightened foreign investment is driven by economies that have high savings rates, a shortage of mature financial markets and few safe assets. Investment in major markets continues, but competition has forced some investors to look to gateway markets and edge cities. While multifamily is still the darling of foreign investment, residential investment is on the rise as another form of a secure asset class.

3. Rising Interest Rates
Interest rates have been at near-historic lows, but savvy investors and homebuyers know they aren’t going to stay that way much longer. Rising interest rates could spur commercial development and slow home sales, unless millennials jump in and buy before interest rates rise too far, giving the residential market a second wind.

4. Global Instability and Currency Devaluation
Although the U.S. dollar remains strong, currency devaluation in many other countries is impacting the global economy. Foreign investment is fueling the U.S. real estate market, but event risk should be considered – “hot spots” of conflict and cyber security are continually in the news, and the global economy is psychologically linked.

5. Urbanization
The desire to reside in urban areas is not limited to millennials, and this is impacting the housing choice for all age groups. Shopping malls, which have typically adopted either a luxury or discount business model, must adapt to a vertical shopping configuration. Suburbs are feeling the pressure of younger families that aren’t buying the kinds of homes leftover from the past generation of suburbanites. On top of that, even corporations are relocating to cities to attract younger professionals.

6. Energy
The drop in oil prices has negatively impacted producers large and small, resulting in workforce reductions. The associated decrease in residents’ buying power impacts the greater community, from retail to housing to professional services. With the length of this downturn unclear, alternative energy forms are becoming more attractive and investors are rethinking their energy investment plans.

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