: Real Estate’s 2013 Pivot Points: Interest Rates, Gen Y, Health-Care Demand
ATLANTA — Low interest rates, increasingly aggressive lending and Generation Y’s housing preferences are among the top factors shaping the U.S. real estate market this year, according to a group of leading real-estate experts.
The Counselors of Real Estate, a Chicago-based global association of hundreds of real estate professionals and advisors, released the list Wednesday at the annual conference of the National Association of Real Estate Editors in Atlanta. The group conducts a survey of hundreds of its members each year to compile a ranking of the top 10 factors influencing real-estate markets.
The association’s chairman, Howard Gelbtuch, outlined the 10 factors in order for an audience at the Hilton Downtown Atlanta.
No. 10: Retail malaise and repositioning. While retailers and malls have withstood the growth of online shopping better than many observers expected, the mall industry increasingly is dividing into a handful of dominant properties in each city and several also-rans. Those struggling properties will need to be redeveloped at great cost.
No. 9: Impact of technology on office space. Companies’ need for office space is declining on the basis of square feet per employee as more workers telecommute from home or elsewhere.
No. 8: Investors focused on global real-estate growth and risk. Many still see strong returns in Brazil, Russia, India and China. Some investors are scouting for distressed opportunities in Europe, but Mr. Gelbtuch said just as many have concluded that the continent won’t recover from its financial crisis anytime soon. And Africa, as an opportunity, “is where China was 20 years ago,” Mr. Gelbtuch said.
No. 7: Natural gas mining. North Dakota, South Texas and parts of Ohio and Pennsylvania are booming as energy companies harvest oil and gas from shale formations. But developers and landlords shouldn’t ignore the risk that gas prices, regulation and international events could cause a slowdown or a bust.
No. 6: Housing demand from Generation Y, people aged 18 to 31 also known as Millennials or Echo Boomers. Many surveys indicate that this generation prefers to live in dense, urban neighborhoods with easy walkability and close access to public transportation. But the risk remains that their tastes will tilt in favor of single-family suburban homes when they have kids and earn more.
No. 5: The implications of climate change and weather on coastal properties.
No. 4: The risk of global events such as terrorist attacks, international computer hacking and weather catastrophes such as Hurricanes Katrina and Sandy and the damage inflicted last month by a massive tornado in Oklahoma City.
No. 3: The resurgence of the capital markets, with lenders starting to warm up to riskier borrowers and granting more lenient terms. “This is starting to get scary,” Mr. Gelbtuch said. “We have seen a loosening of underwriting standards.”
No. 2: Demand for health-care facilities and medical services. The aging of baby boomers and added demands of federal health-care laws has spurred a surge in demand for real estate to house medical services. Meanwhile, many U.S. workers, already saddled with student debt, face rising costs for caring for their aging parents.
The association’s top issue influencing real estate this year: Low interest rates and capitalization-rate risks. Many borrowers taking on loans this year could see their equity investments depleted when interest rates eventually rise, likely leaving many with properties worth less than their mortgages, just like in the downturn. “Things have gotten too good, too frothy,” Mr. Gelbtuch said