Bringing an objective, research-oriented approach to issues in commercial and residential real estate is Counselors Of Real Estate (CRE), a group whose advisors deliver unbiased and trusted advice to clients and employers. Sporting a CRE designation before the NAR Expo 2014 this morning was David Lynn, CEO of Everest High Income Property who sought to sum up the entire coming year in a list of ten issues affecting the real estate marketplace for commercial as well as residential.
Issue #10: Agriculture
Lynn noted that even though agriculture historically goes through cyclical changes and volatile demand, the past two decades in farming have by contrast produced little in the way of complaint from the sector. Efficiencies in farming equipment and processes have steadily goosed output while rising world populations have and will continue to drive demand from the world’s #1 food producer, the United States. One major impact Lynn sees coming in tertiary and smaller real estate markets is rising demand for location in these places. This idea made me think of yesterday’s session with Craig Lindvahl and his efforts to educate small-town youth in the opportunity present in their own back yard. There’s a lot of synergy between these two outlooks.
Issue #9: Manufacturing
The US decline in manufacturing is over, and domestic output is on the rise, foretelling a robust market for industrial property. That said, Lynn pointed out that manufacturing in the early 21st century, similar to farming, is greatly automated and geared toward customization, which will tend to not drive job growth.
Issue #8: Housing
The housing market bottom came in 2012 and Lynn sees growth in housing commensurate with that event.
Issue #7: Capital Markets
A much-feared wave of maturity of commercial mortgage-backed securities has come and gone, said Lynn, resulting in a non-event. The majority of CMBS maturities simply extended their terms “kicking the can down the road” and cleared the way through the market fear to allow a resurgence in CMBS financing. Lynn sees $360 billion in CMBS financing maturing by 2017 and touted improved underwriting of the instruments.
Issue #6: Water
There is a shortage of fresh water in the world and millions die each year due to lack of access to clean water. This reality along with that of climate change adds up, according to Lynn, to a decline in suburban development.
Issue #5: Globalization
With more and more of US GDP tied up with imports and global transactions, a development Lynn sees as by and large positive, real estate values in cities best connected to global flows of goods are in the main expected to rise. Additionally, the US has become the world’s leading exporter of oil and natural gas, which speaks to rising land values in producing areas.
Issue #4: Health Care
The Affordable Care Act served to add 40 million people to the health care system, which in turn has produced a wider range of health care delivery formats and locations convenient to general populations. Lynn sees this trend, along with the prolonged life spans of the US population as a driver for retail and office property.
Issue #3: Millennials
The youngest generation of adults prefers urban living and mass transit, and Lynn pointed out this age cohort numbers the same size as baby boomers. While it’s not clear if the behavioral trends of millennials will hold out, Lynn sees improved values for urban space and declining demand for housing in suburban enclaves.
Issue #2: Jobs
The great recession cost millions and millions of jobs, recovering to 2008 levels only this year. But persistent trends in underemployment make the unofficial unemployment rate closer to 9% according to Lynn. He spelled out that a decline in office space per employee has halved on average to 150 sq. ft. per worker. Retail and office property values aligning with millennial lifestyle preferences for more collaborative and nontraditional working arrangements will tend to produce downward pressure on demand.
Issue #1: Energy
Lynn referenced a sea change in energy markets over the past five years. Driven by fracking technology, the “whole equation has been changed” were the US produces the cheapest energy of any country in the world. California, Dakotas, Montana, Pennsylvania and other energy-producing areas have added up to rising values for commercial and residential real estate close by, making former “flyover” areas far more generally desirable.