High inflation rates and rising interest rates are top of mind for everyone in and outside the real estate industry. Naturally, these two issues also top the annual list of "Top Ten Issues Affecting Real Estate" generated by a survey of the 1000 members of The Counselors of Real Estate, a global organization of commercial property advisors. The annual report analyzes current trends to understand their impact on the year ahead. Read on and learn the top ten challenges facing the real estate industry in 2022.
Sustained inflation, strained supply chains, and tight labor markets
In January, the annual U.S. inflation rate accelerated to a 40-year high of 7.5%. What arguably began as a pandemic-related trend has become a broader, sustained phenomenon. As per the ofirio statistics, strained supply chains, tight labor markets, and an uptick in energy costs drive the sharp price increase. Together, these forces make confident real estate investments more expensive and create the potential for heightened volatility across vast swaths of the market.
Rising Interest rates
Considering more robust hiring, consumer spending, and inflationary pressures, the Federal Reserve is expected to reduce its balance sheet and embark on a series of interest rate increases. Consequently, the private real estate market will have to be brave to manage the interest rate menace and navigate the consequent effects on property values and investment enactment.
Reviving from the pandemic
This pandemic made people more aware of open spaces and the benefits of working from home. Most employees are now keen on permanently working from home. As per reports by Forbes, as many as 25% of all office jobs in America are set to go completely remote with their work by the end of 2023. Commercial real estate and office spaces are bound to significantly dip in demand.
Changes to how we live and work
The Covid pandemic spurred significant changes in our daily lives. Currently, real estate investors are brave enough to assess if and to what magnitude the changes will be unrelenting. What will stick and be tossed aside as society feels “normal” again? Such assessments must be made on a granular level- often property by property. In the office sector, for example, outcomes for individual buildings could be vastly different depending on location and whether a building’s layout can be reconfigured or made more flexible.
Powerful new technology – keeping up with PropTech is a must
The endemic has made the world acclimate to remote work and the most recent technological discoveries. Before the pandemic, the real estate industry was reluctant to use technology in business; human labor was the only prevalent way they had. Post-pandemic things like virtual home tours, drone inspections of houses, and Al-based chatbots to automate interaction with customers in the real estate business are on the rise.
Thriving property technology (PropTech) catalyzes adjustments in the private real estate sector, enabling asset owners and investors to advance all business processes, from design and production to tenant relations, climate risk valuations, and financial management. For instance, data analytics and artificial intelligence can help predict property valuation, pinpoint new investment prospects, and define the timing of rent escalations.
As PropTech adoption accelerates, real estate enterprises are challenged to stay ahead of the curve. To remain competitive, private real estate companies must succeed in identifying and implementing optimal tech solutions.
Climate change impacts real estate
In the two years of the pandemic, when people stayed home for a long time and saw the benefits of lower pollution levels, they became serious about lowering the carbon footprint in the real estate business. According to CNN Business Reports, the carbon footprint of the real estate industry alone is responsible for a whopping 49% of the global carbon emission.
Both construction and building performance are part of these metrics. Real estate property managers can do a lot, from developing new plans to make real estate more sustainable to getting Energy Star appliances for the buildings and making them energy-optimized.
A growing focus on Environmental, Social, and Governmental (ESG) factors
Many people in real estate used to think that ESG factors were not important, but now they are. ESG is at a tipping point; it is no longer a luxury; it is a must-have for all real estate projects. Numerous developments are driving the sense of urgency, including net zero commitments, new guiding standards, and an immense transfer of wealth to young generations. Stern investments need to be made to bring about fundamental, sustainable changes in the market. Policies should be improved, and new-generation technology should be adapted to advance this.
Reusing and revamping properties is on the rise
Many old malls and closed commercial real estate spaces form the centers of major cities but are closed, and their existence is redundant. Many real estate investors and owners are now investing in revamping and reusing these commercial spaces for better business. Not only do these spaces not need new construction, but they also help reactivate dormant resources that burden the city's resources without any use.
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