Image courtesy of www. cre.org

It’s an understatement to say 2020 tested the limits of businesses world-wide. Our lives were besieged by a triple threat, and more. A pandemic. Economic uncertainty. Social and political divides. No industry, community or individual escaped the impact, including the profession of real estate and development.

Each year, The Counselors of Real Estate® identifies the Top Ten Issues Affecting Real Estate and releases the list to the public. For 2020-21, COVID-19 was the headliner, and infiltrated every subsequent issue. The group of highly-regarded, certified professionals predicts that 2021 will continue to test the resilience and direction of an industry gripped by uncertainty and unprecedented challenges. Change will be constant, pushing and pulling on every plan and every decision. Professionals will be driven to assess priorities, measure demand, and innovate within a volatile economic, social and political environment. And that’s just for starters.

President and CEO Van W. Martin of Martin Commercial Properties is a member of the respected organization that annually identifies current and emerging issues, and that helps guide responses to pressing concerns. The landscape will be tough, he said, but professionals who can adjust to the demands and requirements of the “next normal” will succeed.

“Flexibility and adaptation are the key to a successful recovery as we emerge from the Covid-19 crisis,” he said. “The next few years ahead may well be the most challenging of our real estate careers.”

Martin is one of just 1,100 designated Counselors of Real Estate, and one of the only CREs in mid-Michigan. Members reside in 20 countries and U.S. territories, with chapters across the U.S., Canada and Europe. Real estate practitioners holding the prestigious credential are recognized for their expertise, experience, and ethics in providing advice that influences real estate decisions.

Founded in 1953, The Counselors of Real Estate applies rigorous, independent, and informed analysis on real estate decisions facing a full range of market participants. The international organization consists of high-profile property professionals, including principals of prominent real estate, financial, legal, and business advisory firms, and recognized leaders of government and academia. Membership is selective and by invitation, with commercial real estate professionals with 10 or more years of experience encouraged to apply.

The good news is, real estate professionals can formulate strategies for navigating 2021 and beyond by understanding the trends and issues. Following are the Top 10 issues identified by CRE membership, as well as a summary of key points.

Tackling a tough Top 10

1. Covid-19. The effects and aftermath of Covid-19 will lead us to redefine how we do things, and to leave old ways behind. Covid-19 will both reduce and increase demand as the market adjusts to the preferences of consumers and workers, and the changing requirements related to ensure safety. Virtual offices, home entertainment, reduced density in buildings and facilities, and social distancing are among the influences shaping markets.
2. Economic Renewal. The U.S. was heading toward a tipping point pre-pandemic. The post-Covid-19 economy projects permanent job losses, and truncated demand for U.S. businesses—including real estate. Significant segments of the economy remain debilitated and may never come back; partial rebounds are anticipated. Long-run potential GDP growth for the 2020s is project at a weak 1.5-1.6 percent.
3. Capital Market Risk. Since the pandemic hit, volatility has spiked and debt and equity capital liquidity became less fluid. While the market is stabilizing in terms of pricing and liquidity, loan defaults and late payments remain a looming issue as they continue to increase. Commercial real estate will experience a reevaluation, and Covid-19 behavioral changes will ultimately drive what capital will cost.
4. Public and Private Indebtedness. Commercial real estate will be influenced by local indebtedness funded by local taxes. Public debt must be translated locally to understand the sectors that influence commercial real estate demand, value and investment activity. Key observations include a U.S. national debt of $26 trillion, a total state debt of about $1.2 trillion, student loan debt of $1.7 trillion, and total personal debt that exceeds $20.5 trillion—or $62,000 per citizen.
5. Affordable Housing. The need for affordable housing versus the “Not in My Back Yard” agenda continue to do battle. Currently, there is a shortage of more than 72 million affordable rental homes for low-income renter households. In turn, the price of multi-family investment properties and rents are driven up by the lack of affordable for-sale homes. Suggested solutions include expedited approval processes, expanded taxpayer subsidy programs, and zoning changes to accommodate market rate, affordable housing.
6. Flow of People. World economies and people face unprecedented mobility challenges. Nearly 40 percent of urbanites are considering fleeing cities, representing wealthier households and those able to work remotely. Real estate implications will be driven by how long pandemic-related behaviors persist, the quality of world leadership, and innovations in healthcare, living and working.
7. Space Utilization. Covid-19 will have a lasting and profound effect on real estate space. Old retail formats will be replaced with medium-density, mixed-use communities. Intentional design will integrate features and spaces that enable normalcy in case of future lockdowns. As the “new normal” unfolds, real estate professionals will learn how to best use space to make employees and clients feel safe. Many classic retail formats will never rebound, requiring redevelopment or creative reuse to regain vitality.
8. Technology and Workflow. The pandemic called for technology to monitor, manage and mitigate risks. Many technologies, tools, systems and remote capabilities will be mandatory, rather than “nice to have.” Necessity will yield smarter buildings and operations, including tracking of people, contactless doors and elevators, monitoring air and water quality, airflow and recirculation control, remote building services, and health screenings. Spaces will be safer, more efficient and better prepared for future disruptions.
9. Infrastructure. The nation’s infrastructure is in crisis, manifested by underinvestment and elusive funding. Real estate values and development patterns will be affected as basic needs go unmet, making underserved locations less viable for development. Major disruptors like the pandemic, extreme weather, cyber-attacks and terrorism will further complicate the crisis. Infrastructure will continue to be a critical issue, forcing us to see it as a crucial to sustaining life and commerce.
10. ESG. No longer an emerging trend, Environmental, Social and Governance is critical to real estate development and will contribute to long-term value creation. Issues of equity, sustainability, health and wellness, ad diversity will filter into decision-making, while the growing influence of millennial investors and ESG initiatives from corporations impact real estate. ESG requires real estate investing to consciously focus on stakeholders and different perspectives—including those of investors and clients, tenants, residents, building staff and contractors.

Would you like to see the complete Top Ten list and discussion? Learn more about the role and initiatives of the Counselors of Real Estate? Visit https://www.cre.org/external-affairs/2020-21-top-ten-issues-affecting-real-estate.