Rising interest and capitalization rates are on top of the list of issues that have future implications for real estate, according to Scott Muldavin, chair of the Counselors of Real Estate and senior advisor at the Rocky Mountain Institute in San Rafael, Calif. Muldavin shared his insights on these and other issues affecting real estate at the National Association of REALTORS® 2013 Conference and Expo. Members of the Silicon Valley Association of REALTORS®, along with about 20,000 REALTORS® from across the country and around the world, attended the conference held in San Francisco Nov. 8-11.
1. Rising Interest and Capitalization Rate Risks
Record low interest rates have driven the economy and real estate markets in recent years. Rising interest rates could raise capitalization rates, which could create anxiety about investing in real estate.
"My advice is to be careful about your investments today and lock in those low rates if you can," said Muldavin.
2. Health Care
As the population ages, there will be greater demand for senior housing, requiring a change in the configuration and size of available housing. A growing number of seniors will require greater medical care, leading to expansion in medical facilities.
3. Capital Market Resurgence
A continued capital market resurgence will be good for real estate. Underwriting is still tighter for the residential sector than commercial, but rates are near historic lows.
4. Event Risks
The impact of major global events like war and acts of terrorism on the stock market and global economies trickles down to real estate.
"They need to be considered because their impact is often great," said Muldavin.
5. Implications of Climate Change/Weather on Coastal Property Markets
Climate change will continue to have a strong impact on properties across the country. Property owners in areas hit by Hurricanes Katrina and Superstorm Sandy are now dealing with changes in zoning standards and higher insurance premiums.
6. Echo Boomer Housing Demand
Future housing demand is likely to come from echo boomers, the 80 million Americans born between 1982 and 1995. This generation prefers a more flexible and active urban lifestyle, relies heavily on mass transit, and is more willing to trade home size for location.
"We are the only developed country that has had an echo boom, and that's a positive thing if the country can react and respond to it," said Muldavin.
7. Implications of Increased Natural Gas and Oil Reserves on the U.S. Economy
Increased natural gas and oil production creates more jobs and reduces U.S. dependence on foreign oil, but the increase in fracking has raised concerns about the environment. Fracking has not uniformly lifted prices of commercial real estate in the Midwest.
8. Global Real Estate Growth and Risk
Unemployment in Europe and the global debt crisis affect foreign investment in real estate.
9. Impact of Technology on Office Space
The office market has the highest vacancy rate because technology has introduced new ways of doing business at the expense of employees and space. Work-from-home and telecommuting have allowed people to work when and where they want, significantly reducing office space requirements.
10. Retail Malaise and Repositioning
Retail demand is down due to increased Internet sales, which are expected to rise.
"Many people are replacing physical items with electronics and free or virtual products, such as e-books and smartphones enabled with cameras, GPS and flashlights. This means businesses will continue to require less retail space, so I believe the trend in the future will be for fewer and smaller stores," said Muldavin.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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