A recently published report by Urban Land Institute and PwC suggests a contradiction in terms. As the North American real estate industry returns to some sort of pre-pandemic normality, some sweeping changes from the pandemic era are solidifying and are likely to persist.
These are some of the findings of ULI and PwC’s annual report highlighting the latest emerging trends in the real estate industry, titled Emerging Trends in Real Estate 2023. The report draws on input from over 2,000 industry experts, as well as a number of proprietary data points. Among the highlights: an overview of the evolution of investors’ concerns about climate change and trends in the real estate sector resulting from the Covid crisis.
The report’s authors acknowledge that the current reduction in sales, particularly in housing, comes after the U.S. commercial real estate market has seen years of near-record yields, rising rents and price appreciation. . Growing demand for well-located logistics facilities is helping to keep vacancy rates in the industrial sector at or near record highs. Other real estate sectors, including hotels and real estate investments, are returning to levels seen before the Covid-19 pandemic.
The median price of existing homes in the United States jumped more than 30% in the wake of the pandemic, further worsening an already dismal picture of housing affordability. The result: levels of unaffordable housing not seen in nearly a third of a century.
Factors responsible for the affordable housing shortage – including restrictive building codes and zones, increasingly complex affordable housing development transactions, and labor issues in the construction industry – remained unchanged or worsened. With demand for rental housing outstripping supply, rents have no choice but to rise.
The widespread migration to more affordable Sun Belt markets has helped countless Americans overcome the housing cost crisis. But with the increased demand for Sun Belt housing came the logical by-product, rising house prices and rents in the south.
Rethink the office
The authors of the study do not predict a mass exodus from office buildings. The current office environment is a potpourri of downsizing, terminated leases and transition to subletting. But many office building tenants have kept their offices because they signed long-term leases before the pandemic or might need them in the future. Distinctive offices are able to attract talent to employers. For this reason, companies need to rethink their spaces to decide if they meet their needs and can help attract top talent.
ESG, climate considerations
The willingness of residents and developers to invest in certain regions is impacted by climate change that is increasingly difficult to ignore. Improved information on environmental, social and governance (ESG) aspects is sought by investors and other stakeholders, who demand voluntary action to address these concerns.
In the meantime, greater disclosure, transparency and consistency are the goals of the SEC’s proposed regulations. The result is an ever louder cry from investors for greenhouse gas (GHG) emission limits and more environmentally friendly and energy efficient buildings. These targets are part of the Cut Inflation Act of 2022.
Justice for the Underserved
The events of the past three years have also propelled commercial real estate initiatives intended to benefit underserved communities. Goals include addressing issues of accessible transportation, broadband Internet access, and environmental justice, as well as reconnecting black and Hispanic neighborhoods that urban renewal programs of the 1950s through 1970s uprooted. As the initiatives are addressed, by-products could include increased access to jobs, growing economic opportunities, and the rebuilding of once-thriving communities that post-war federal highway and urban renewal programs left broken.
Investment in once-neglected residents and neighborhoods is included in laws such as the Bipartisan Infrastructure Act, the Community Reconnection Pilot Project, and the Reducing Inflation Act, which collectively could put billions of federal dollars to work on these programs.