NEW ORLEANS — The top trends affecting real estate in the year ahead all seem to center on disruption.
Factors such as “experiential” retail, the sharing economy, political instability, shifting demographics and the densification and urbanization of cities are key in both the commercial and residential markets, according to the Counselors of Real Estate’s 2016-2017 Top 10 List of Issues Affecting Real Estate.
The top issue, according to CRE: the changing global economy, instability and slowing growth around the globe.
Jim Lee, chairman of CRE and a co-founder of investment firm Kensington Realty Advisors in Chicago, presented at the National Association of Real Estate Editors conference here. CRE is an invitation-only group of top real estate advisers and includes 1,100 members worldwide.
Here’s the list, with some metro Atlanta angles added:
10: The Rise of Experiential Retail
Retailers are adapting to online shopping by trying to turn their centers into live-work-play communities, rethinking the tenant mix to provide unique shopping and entertaining experiences. The ideas is to create “destination” centers where people want to spend time as well as buy stuff.
In metro Atlanta, examples are Avalon in Alpharetta, Ponce City Market, the reinvention of Phipps Plaza and Lenox Square, Buckhead Atlanta and the Battery Atlanta entertainment district under development outside the new Braves stadium in Cobb County.
Stores are becoming more like showrooms and return centers for online shopping, while restaurants and tenants such as luxury bowling alleys can be anchors for developments, Lee said.
Malls also are rethinking the use of their real estate, adding apartments and hotels to bring new energy to their surroundings as more consumers seek out neighborhoods where they can walk to parks, dining and entertainment. Phipps Plaza has plans for both, while Perimeter Mall’s owner is working a deal to sell an outparcel to a developer for an office tower.
9: The Sharing/Virtual Economy
Ride-sharing services such as Lyft and Uber mean retail centers and apartments might need fewer parking spaces. AirBnB is a serious threat to hotel owners. Crowdfunding, or ways to raise investment dollars from regular people, is changing real estate investing, he said.
Spiking energy costs were a big problem for some tenants and a boon to landlords in energy-driven local economies such as Houston. Now that has flipped with the oil glut. Investors, Lee said, are reassessing their investments in energy boom towns, and the office market in Houston is struggling amid layoffs and corporate restructurings.
7: The Disappearing Middle Class
It’s more than just a problem for real estate, but stagnant wages and the expanding gap between rich and poor affects purchasing power for consumer goods, cars and homes. Meanwhile, the CRE report said, costs for health care and college have risen. In response, many middle market retail chains have struggled.
The shift from home ownership to renting is one reflection of that, which does open opportunity for investors in apartment communities.
Millennial households also do not have the same relative purchasing power of their predecessors.
“The wealth and income gap continues to grow,” Lee said.
6: Housing Affordability and Credit Restraints
Both rentals and home ownership are strained by issues of affordability. Home prices have risen beyond the reach of many buyers, which forces more to rent and pushes up prices for apartments.
Lee said “micro apartments” could be one answer, but not everyone will want to live in a tiny unit. Will builders shift from luxury homes to starter homes?
Lee said the high housing cost issue will present both challenges and potential opportunities to be creative with affordable housing.
5: The Political Environment
Instability in politics puts doubt in the minds of investors, Lee said.
“The political environment has become acrimonious on all levels, whether that’s global, federal, state or local,” he said.
Continued population growth and the challenges of an aging population will pressure the nation’s infrastructure.
In Georgia, the state has won kudos for the partnership between Gov. Nathan Deal and Atlanta Mayor Kasim Reed. State lawmakers also voted to raise fuel taxes to fund roads and bridges and gave Atlanta residents the opportunity to vote to expand MARTA
Many suburbs are trying to be more urban, pursing walkable developments and live-work-play communities. That’s expected to continue both in cities and the burbs.
Urban areas are winning at the expense of suburbs, Lee said, with vibrant urban centers showing themselves to be more economically viable. In metro Atlanta, Alpharetta, Dunwoody, Sandy Springs and others are getting denser, particularly around mass transit.
Like the issue of experiential retail, there’s both a threat and opportunity for traditional retail and office centers.
3: Demographic Shifts
The nation is getting older, millennials are waiting later to get married and have kids and all generations are demanding more in terms of services and amenities. Baby boomers are headed to retirement and millennials have now surpassed boomers in the workforce.
Another aspect of both changes in demographics and urbanization: Baby boomers and millennials competing for the same housing.
As boomers age, it will put greater strain on governments and real estate professionals to provide infrastructure and services to allow them to age-in-place, the report said. This also opens opportunity in the senior living and elder care industries, and likely in more densely-populated areas.
2: Debt Capital Market Retrenchment
Lending is slowing, Lee said. Regulators are instructing banks to pump the brakes on commercial real estate lending and commercial mortgage-backed securities also are slowing, he said. The competition for debt will intensify.
1: The Changing Global Economy
The top issue, Lee said, is the changing economy and cooling global growth. The U.S. remains a magnet for foreign investment, but trade activity abroad is weakening and Lee said his group is seeing foreign investment softening.