As of April 3, by one estimate, the unlevered enterprise value of real estate assets had fallen 25 percent or more in most sectors and as much as 37 percent for lodging (the most extreme example).1REITs amid a pandemic, Green Street Advisors, April 3, 2020, greenstreetadvisors.com. 'Danger' report alerts industry to 50 biggest threats - Inman In the short term, the tradeoff for these health and wellbeing operational improvements is a significant increase in building energy consumption for common areas and tenant spaces, along with a corollary increase in greenhouse gas (GHG) emissions. For example, while institutional ownership of single-family rentals (SFR) continues to rise, only 2% of SFR are currently owned by institutional investors. In the medium to long term, the changed behaviors forced upon the industry will have likely altered the way consumers and businesses use and interact with real estate. Threats Of The Real Estate Industry - 763 Words | Bartleby The longer it takes to moderate, the greater the negative implications for real estate.. Will people decide not to live in condominiums for fear of having to ride elevators? Employers are eager to have a return to the office to get the most out of their employees and to cost-effectively utilize their office footprints. Occupiers will lease less space if they lack the workers to run their businesses.. These requirements are forcing real estate investors to measure and report and in some cases publicly disclose their assets energy and water use, waste, carbon emissions, and climate change risks. Technology has created an ecosystem for rapid advances, disruption and the elimination of previous methods and models. Most also agree that Covid accelerated trends that were already emerging, including remote work, online retail, and migration to warmer climates and tertiary urban markets. Many regulations adopted during the pandemicdirectly impacting the real estate industryare intended to provide financial support to those who have been adversely economically impacted by the pandemic. Today's Top Threats and Opportunities in the Real Estate Industry Not only are such changes the right thing to dotheyre also good business: tenants and users of space will remember the effort, and the trust built throughout the crisis will go a long way toward protecting relationships and value. Why Zillow's Competitive Advantage Is In Danger In the real estate industry, ESG risk assessment and mitigation initiatives are becoming essential components of real estate investment. The working world moved rapidly from business as usual to cautious travel, office closures, and work-from-home mandates. 14 Important Factors Impacting Commercial Real Estate In 2021 - Forbes The Counselors of Real Estate has identified the current and emerging issues expected to have the most significant impact on all sectors of real estateeach determined through polling, discussion, and debate among the broad Counselors membership. The market seems to have pivoted mostly on the inherent degree of physical proximity among an asset classs userseven more so than on its lease length. 7 Critical Issues Facing the Commercial Real Estate Industry This is not a so-called smart building or Internet of Things (IoT) problem, which continues to stack up risks, but rather a 40-year build-up as our main systems (e.g., HVAC, elevator, lighting, access control, parking) require computers, networks, and Internet connections. Some of the practical consequences of what building owners and business owners are facing and need to consider in their business continuity and resiliency planning include: Energy conservation, including reform, sustainability, and renewable energy, has been an ongoing topic in real estate for over 50 years. Thanks to the richness of available behavioral data, select real estate leaders will use analytics to generate fact-based insights on local epidemiological and economic scenarios, what is happening to competitive assets around a property, and the impact of the crisis on individual tenants. Will employees demand larger and more enclosed workspaces? Cyberattacks have increased and continue to impact global stability as they target critical infrastructure. With continued political uncertainty providing significant headwinds, the ultimate impact on commercial real estate will be greater than if the political risk didnt exist. On the supply side, multifamily completions in 2020 and 2021 in properties with 5 or more units were at their highest levels since the late 1980s. Return to office preparedness and planning by companies and building owners further emphasized the importance of health and wellbeing in the workplace for productivity and employee attraction and retention. It had to drastically cut sales and marketing expenses and interest . The CWA requires the EPA, the Corps, and states that have permitting authority to regulate the discharge of pollutants into WOTUS. In the UK, asset values suffered their fastest ever declines, with one index of commercial real estate compiled by MSCI down . All affected companies would be required to report Scope 1 and Scope 2 GHG emissions from owned operations and purchased electricity. Most real estate players have been smart to begin with decisions that protect the safety and health of all employees, tenants, and other end users of space. Economists generally view high quit rates as a positive sign that workers have enough confidence to leave one job for another. At the state and local level, there continues to be a proliferation of new regulationsoften initiated in coastal states such as Californiaintended to address water quality and availability, GHG reductions and net-zero emissions mandates, wildfire hazard, wetlands regulation, sea-level rise, clean energy mandates and fossil fuel regulation, rapid transportation legislation, and the production of much-needed market-rate and affordable housing. Basic economics, as weve learned, is the creation of equilibrium between supply and demand to create economic harmony. As China shut down, the world effectively shut down. Initially a demand shock, COVID-19s impacts persist. Directors and Officers (D&O) insurance is now rising in importance with some cybersecurity lawsuits against individuals and recent SEC Cybersecurity disclosure proposals. But creativity can also be employed more often, as not all cash-creating activities need to involve cutting costs. These requirements are also instigating much innovation in the design, development, and construction of new buildings as well as renovation of existing stock with long lifespans ahead of them. 2020-2021 Top Ten Issues Affecting Real Estate - Counselors of Real This may make the practice of communicating as a company-level brand (rather than property-level brand) more common, speeding up an existing market trend. However, despite the urban exodus, downtown employment centers are expected to continue to draw residents seeking abundant urban amenities even as these centers become less pronounced as employment hubs. Simply put, the real estate industry is at the crux and mercy of our ever-evolving economy. Companies may look to invest in less expensive satellite units or shared and co-working spaces as they try to predict their future office needs once work lifestyles normalize and their leverage increases as the labor market stabilizes. Public-health officials may increasingly amend building codes to limit the risk of future pandemics, potentially affecting standards for HVAC, square footage per person, and amount of enclosed space. Geopolitical risk and the implications of hybrid work round out the top three. As of April 3, by one estimate, the unlevered enterprise value of real estate assets had fallen 25 percent or more in most sectors and as much as 37 percent for lodging (the most extreme example). It is these fast-paced developments in the regulatory landscape that will likely support the adoption of policies and practices toward low-carbon economy change over the next few years. These include important health and safety regulations including mask mandates, social distancing, and vaccination requirements focused on limiting the community spread of the virus. By one standard measure, inflation is at levels not seen since the early 1990s. Corporate real estate strategy in the COVID-19 era. | McKinsey OUTLOOK 10. The Great Resignation hit hard, and worker mobility is on the rise. The emerging conflict between state preemptive legislation and local control over land use, and the litigation that has emerged from these conflicts, will create additional regulatory uncertainty for some time to come.. Properly implemented, a set of clear protocols along with structured, fact-based decisioning will ensure fairness and procedural justice for tenants and help operators communicate their actions with key stakeholders, including tenants, investors, and lenders. Many of the new regulations are intended to shape land-use patterns and encourage the production of housing in urbanized areas where transit-oriented and other higher-density affordable housing development is encouraged and incentivized through regulation. Beyond the decline of downtowns, the decentralization of people and resources outward from employment centers poses other problems. Higher energy costs, especially over an extended period, can also have a negative effect on real estate. 9. Since humans first started trading, those with goods and services in demand adjusted their business to produce more to support growing demand. Over the past several years, industry leaders have been diversifying sources of revenue, pursuing digital strategies, and focusing on tenant experience. ALL FIVE SEGMENTS of commercial real estate - office, industrial, retail, multifamily and hotels - present significant challenges as well as opportunities. These estimates were extrapolated from the detailed study of the New York City office market where they estimated a $49B value declination by 2029. Nearly every landlord is preparing for the effects of the downturn, when scores of tenants across asset classes will ask for lease concessions or abatement. On the continent, European Climate Law has codified the EUs commitment to reaching climate neutrality by 2050 and the intermediate target of reducing net greenhouse gas emissions at least 55% by 2030 compared to 1990 levels. Top Five Cybersecurity Threats to Real Estate Businesses PDF Cyber in real estate - Deloitte US Proptech and smart building companies can expand their data-collection focus supporting optimal conditioning, cleaning, and maintenance operations to include more precise occupancy, space type utilization and movements of users data through the use of sensors to help companies reevaluate their changing real estate needs. Vaibhav Gujral is a partner in McKinseys New York office, where Aditya Sanghvi is a senior partner, Robert Palter is a senior partner in the Toronto office, and Brian Vickery is an associate partner in the Boston office. The NOAA mapping forecasts the sea will slowly encroach on and engulf the current coastal communities between now and then. By Q2 2021, when vaccines were becoming widely available and the economy more fully reopened, those young people contributed significantly to new household formations. And, as the crisis affects commercial tenants ability to make lease payments, many operators will need to make thousands of decisions for specific situations rather than making just a few, broad-based portfolio-wide decisions. By the end of Q2 2020, real output was contracting by nearly 10%. Like the anticipated reduction of office space that may occur if remote work continues longer term, it is anticipated that colleges and universities may reduce their real property as more online delivery and remote work makes large campuses obsolete; some institutions may fail altogether. Disruptions in the commercial real estate market could in turn potentially threaten financial stability through the connectedness of the sector with the financial system and the broader macroeconomy. As businesses reopen, owners are being forced to make tough decisions . Single-family completions, on the other hand, were still running just shy of their long-term average of one million units per year, and well below the peak 1.6 million pace of 2006. This includes CWA Section 404 dredge and fill permits issued by the Corps. Current decentralization pressures and the potential for property devaluation are sure to keep the entire financial sector on guard during the evolution of the next few years.. 2022-23 Top Ten Issues Affecting Real Estate, 2023 Specialty Interest Group Palooza Registration. State of Commercial Real Estate 2018 (Part 1: Threats and Opportunities) Written by: William Hunt. Interests rates and the economy As interest rates continue to rise, expect to see several changes in commercial and residential real estate markets. Secondary cities offering a mix of high quality of life, relatively lower costs and/or job generation such as Boise, Austin, Raleigh, Orlando, and Phoenix are also expected to grow by at least double the national pace. Planners, government staff, and elected officials will face renewed pressure for new and upgraded Infrastructure and increased need for services in more decentralized locations which are often the most expensive and difficult areas to service. It all adds up to a situation normally seen only during wartimes: Worker shortages and supply bottlenecks so severe that many businesses have been forced to cut back on production, despite ample consumer demand. The ten-year break-even inflation rate remains above 200 bps. In addition to the real opportunities garnered by these trends, the Real Estate industry is already experiencing an increase in the attack surface from potential new threats and risks. These become critical as many companies own hundreds of connected buildings through thousands of technology systems and IoT These risks, both global and domestic, generally materialize as volatility due to uncertainty about the future impact on economies and financial markets. More recently, there has been a steadily intensifying cybersecurity theme from state actors such as Russia (publicly) and Iran (in secret documents) and for-profit hackers that all target critical infrastructure in the West. Before the pandemic, consumers were already shifting their spending away from physical stores. With the Feds dual mandate of maximal employment and price stability, its initial focus was labor markets, which have largely recovered. Balanced collaboration between asset owners and managers and employers with a focus on the long term will be crucial to provide flexibility in the game of musical chairs that is underway across real estate sectors. Labor demand, which is measured by the sum of both filled and open positions, typically takes several years to recover after a recession.
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