Stephen H. Berardi, The Daily Record Newswire
As the condition of the global economy continues to cause uncertainty across all industries, The Counselors of Real Estate asked its members to identify some of the top structural issues that will define the real estate industry over the next 10 to 30 years. They are briefly described below.
Aging of the population
The aging of the population will broadly and dramatically affect real estate markets from housing, retail sales, health care and other factors that define the success of different geographic areas. Aging will most directly affect the demand for real estate, but will also have less direct effects, such as the potential capital impacts as retirees by the millions move from being net contributors of capital to the economy to net users of capital.
Funding of public employee retirement systems
Underfunding of state and local retirement systems in the trillions of dollars provides extreme challenges to the provision of basic local and state services critical to real estate properties and markets. Can existing government assets be tapped for cash in a way that makes economic sense and does not shortchange future generations?
Student debt burdens
Student college debt averages approximately $50,000 per student with a total that exceeds consumer debt for the first time. How will such burdens change the patterns of spending, household formation and financial growth of the next generation of graduates ?
Infrastructure funding and U.S. competitiveness
Creative public-private partnerships with state and local governments are being viewed as potential supplements or replacements for federal funding of the next generation of needed infrastructure improvements, and could cover the trillions of dollars of deferred maintenance of existing assets.
Changing office and retail demand
Reductions in office space usage by larger occupants due to increased use of technology, acceptance of alternative work systems and changes in retail as Internet purchases change the role and purpose of physical retail space will define winners and losers going forward.
Real estate capital markets liquidity
Capital limitations on banks as a result of the Dodd-Frank legislation and other new rules applicable to real estate raise concerns about the rate of returns of the Commercial Mortgage Backed Securities market. Hundreds of billions of dollars of real estate loans that must be refinanced in the next several years and growing capital demands by other sectors of the economy will create continuing uncertainty over access to capital.
Smaller properties, properties in secondary markets, and properties with weak borrowers are already experiencing a severe capital shortage. In addition, substantial vacancies, high tenant rollover in early years and other risk factors will continue to contribute to the capital shortage.
Global change and uncertainty
The political gridlock and budget crisis in the U.S., the European financial crisis, the slowdown of China’s economy, uncertainty and slow growth in the Middle East and continuing expansion of global interconnections make uncertainty about the future of finance a certainty. These issues will continue to affect real estate investment in the U.S. and abroad.
Political gridlock
Many of the key issues and challenges require broad consensus in order to solve these problems. Will there be greater cooperation, or will political gridlock continue? Answers to these questions will be critical to determining the future of the real estate industry.
—————
Stephen H. Berardi, CPA, is a principal at Mengel, Metzger, Barr & Co. LLP and can be reached at (585) 423-1860 or SBerardi@mmb-co.com.
