flexiblefullpage -
billboard - default
interstitial1 - interstitial
Currently Reading

Climate-related risk could be a major headwind for real estate investment

Market Data

Climate-related risk could be a major headwind for real estate investment

A new trends report from PwC and ULI picks Nashville as the top metro for CRE prospects.


By John Caulfield, Senior Editor | October 14, 2021
Industry experts are positive about real estate's prospects. Images: Emerging Trends in Real Estate 2022
A survey of some 1,700 industry experts found a lot of positivity about future ROI from real estate investment and economic growth. Images: Emerging Trends in Real Estate 2022

The institutional investment capital that’s been flowing into real estate globally is expected to increase as an already rebounding economy expands. But there’s also a growing consensus among real estate professionals that environmental, social, and governance (ESG) elements will factor more impactfully—and uncertainly—into future development. Broader housing affordability is one of those elements that could create diverse workforces and drive equitable outcomes.

These are some of the trends that arise from a survey of industry experts whose responses form the basis of “Emerging Trends in Real Estate 2022,” the 43rd edition of this series, which was released today.  (To download the full report, click here.)

Researchers for the latest report’s co-sponsors, PwC and Urban Land Institute (ULI), interviewed 930 individuals and evaluated survey responses from another 1,200. Private property owners or commercial/multifamily real estate developers accounted for 35% of the respondents; real estate advisory, service, or asset managers 22%.

Among the AEC firms whose representatives were interviewed were BOKA Powell, Brasfield & Gorrie, CM Constructors, Gensler, Kimley Horn, Malasri Engineering, Swinerton, STG Design, Tenet Design, and Turner Construction.

The 100-page report lays out the challenges that lie ahead for the real estate sector to cope with changing consumer expectations and a “massive shift” in the functionality of homes, offices, retail, and healthcare spaces. “Property markets that were once predictable will likely remain in a bubble of uncertainty,” the reports states. It will also be “imperative” for businesses’ strategies to approach environmental, social, and governance issues holistically.

Industrial and multifamily remain the two hot property types.
Industrial and multifamily remain the two hottest investment and development building types.
 

IS HOUSING AFFORDABILITY INTRACTABLE?

The report finds the real estate community optimistic about its future, and the main reason is “an abundance of investable capital, low interest rates, and continued demand for many product types,” says Byron Carlock, a Partner and U.S. Real Estate Practice Leader for PwC. The real estate industry is also finally getting into the 21st Century by adopting technology to assess investments and manage properties. But despite higher acceptance, property technology “still has significant areas of future growth,” the report states.

Proptech investment increasing
The adoption of property technology is intensifying.
 

The report highlights several other trends that include a rebound from a COVID-19 induced “brief and muted real estate downturn” in real estate investment. Economic output is forecasted to grow “at the highest rate in decades” in 2021 and 2022. One area of concern, however, is housing affordability, which “worsened” during the pandemic and as the economy reopened. “Affordability will likely continue to deteriorate in the absence of significant private-sector and government intervention,” the report asserts.

Remarkably, 82% of respondents claimed that their companies consider ESG elements when making operational or investment decisions. However, the report also observes that investors “have been slow to incorporate environmental risks into underwriting.”

THE SUNBELT OFFERS FERTILE CRE PROSPECTS

Office space needs are expected to decline
Office space needs are projected to decrease, and that space's use is changing, too.
 

One of the question marks in the real estate sector revolves around the future value of office space. Nearly two-thirds of the report’s respondents believe that fewer than 75% of workers will return to their offices at least three days a week in 2022. In fact, industry leaders predict that the need for office space will decrease by 5-15 percent in the next three years. This trend is already leading to redesigns of offices for hybrid work patterns and flexible usage.

Cybersecurity seen as an industry disrupter
Real estate experts are concerned about the potential impact of cyberattacks on their assets, among other things.

 

The office conundrum is compounded by what the report calls the Great Relocation, where highly paid office workers are moving away from their workplaces. The report’s authors think this phenomenon could create more of a suburban and Sun Belt future. “Sun Belt metropolitan areas account for the eight to-rated overall real estate prospects [and] occupy the top five places in the homebuilding prospects rating.”

Nashville was identified as the No. 1 market for real estate prospects, based on growth, homebuilding, affordability, and employment opportunity. It was followed by Raleigh-Durham, N.C., Phoenix, Austin, Texas, Tampa-St. Petersburg, Fla., Charlotte, Dallas-Fort Worth, Atlanta, Seattle, and Boston.

The report points out as well that investors and Real Estate Investment Trusts (REITs) are now more disposed to consider alternative sectors like student and senior housing, life sciences, and industrial. These sectors, the report explains, offer higher returns at lower prices. They are less volatile to business cycles, too.

Related Stories

Market Data | Jun 22, 2022

Architecture Billings Index slows but remains strong

Architecture firms reported increasing demand for design services in May, according to a new report today from The American Institute of Architects (AIA).

Building Team | Jun 17, 2022

Data analytics in design and construction: from confusion to clarity and the data-driven future

Data helps virtual design and construction (VDC) teams predict project risks and navigate change, which is especially vital in today’s fluctuating construction environment.

Market Data | Jun 15, 2022

ABC’s construction backlog rises in May; contractor confidence falters

Associated Builders and Contractors reports today that its Construction Backlog Indicator increased to nine months in May from 8.8 months in April, according to an ABC member survey conducted May 17 to June 3. The reading is up one month from May 2021.

Market Data | May 18, 2022

Architecture Billings Index moderates slightly, remains strong

For the fifteenth consecutive month architecture firms reported increasing demand for design services in April, according to a new report today from The American Institute of Architects (AIA).

Market Data | May 12, 2022

Monthly construction input prices increase in April

Construction input prices increased 0.8% in April compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data released today.

Market Data | May 10, 2022

Hybrid work could result in 20% less demand for office space

Global office demand could drop by between 10% and 20% as companies continue to develop policies around hybrid work arrangements, a Barclays analyst recently stated on CNBC.

Market Data | May 6, 2022

Nonresidential construction spending down 1% in March

National nonresidential construction spending was down 0.8% in March, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau.

Market Data | Apr 29, 2022

Global forces push construction prices higher

Consigli’s latest forecast predicts high single-digit increases for this year.

Market Data | Apr 29, 2022

U.S. economy contracts, investment in structures down, says ABC

The U.S. economy contracted at a 1.4% annualized rate during the first quarter of 2022.

Market Data | Apr 20, 2022

Pace of demand for design services rapidly accelerates

Demand for design services in March expanded sharply from February according to a new report today from The American Institute of Architects (AIA).  

boombox1 - default
boombox2 -
native1 -

More In Category




halfpage1 -

Most Popular Content

  1. 2021 Giants 400 Report
  2. Top 150 Architecture Firms for 2019
  3. 13 projects that represent the future of affordable housing
  4. Sagrada Familia completion date pushed back due to coronavirus
  5. Top 160 Architecture Firms 2021

 


Magazine Subscription
Subscribe

Get our Newsletters

Each day, our editors assemble the latest breaking industry news, hottest trends, and most relevant research, delivered to your inbox.

Subscribe

Follow BD+C: