Top 10 Issues Impacting Commercial Real Estate in 2014Top 10 Issues Impacting Commercial Real Estate in 2014

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AgricultureAgriculture

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10. Agriculture � 920 million acres of the U.S. devoted to farming – 45% of the land � $39 billion in trade surplus – 5% of U.S. GDP � U.S. produces more food than it consumes – only 6.8% of consumer income, much lower than other countries � Increasing specialized demand, such as organic foods � Investment opportunity: As the world population grows, the demand for food increases

ManufacturingManufacturing

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9. Manufacturing � Even technology runs on manufactured “stuff” – laptops, microphones, phones, etc. all have to be made first �Manufacturing doesn’t translate directly into jobs

� Today’s facilities employ 20% of the labor force a decade ago � Robotics and automation replacing people

� 3D printing has the potential to revolutionize the industry �Manufacturing superpowers used to be Eastern, now Western

HousingHousing

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8. Housing �Moved from a headwind to a tailwind, but ownership still lags � Obstructed the entire national economy � People couldn’t move to where the jobs were � Greater liquidity in housing is creating jobs, albeit incrementally

� Finance, landscaping, architecture, retail (indirectly) �Multifamily may feel downward pressure as people transition from renting to owning

Capital MarketsCapital Markets

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7. Capital Markets � Availability of capital is vital to the CRE industry � CRE is still better than any investment alternative � New round of refinancing this year with $360 billion in permanent securitized loans requiring refinancing by 2017 �While investors await extraction of quantitative easing, the real question is whether or not we’re headed for a “bubble”

WaterWater

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6. Water � Global demand expected to exceed supply by 40% by 2030 � Areas where we think global growth is headed – China, India, etc. – are severely lacking water

� China has 20% of the world’s population, but only 7% of the world’s water

� U.S. will likely face shortages, too, impacting agriculture, development, land value and investment

GlobalizationGlobalization

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5. Globablization � Global supply chain drastically impacted by U.S. manufacturing, eCommerce and widening of the Panama Canal � U.S. manufacturing could cause labor issues in Europe and Asia �What happens if the U.S. doesn’t need oil from the Middle East? � Devil’s bargain: we traded our jobs for lower costs �Money we are sending aborad is coming back to the U.S. in the form of CRE investment

HealthcareHealthcare

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4. Healthcare � $40 billion worth of healthcare facility construction next year

� By 2018, that’s expected to grow up to $50 billion � Providers constructing specialized consultative facilities in non-urban areas, providing wide range of services for lower cost � Consolidation creating excess unused properties and higher demand for updated facilities � Class B malls well-positioned to serve as healthcare facilities

MillennialsMillennials

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3. Millennials � Second greatest demographic wave in U.S. history � 9.1% unemployment rate: hard to find jobs, therefore hard to find housing in the short-run �Median income for younger millennials is only $25,000; older millennials is $40,000 � Trade size for proximity to food, shopping and, if possible, work � Causing pain in the suburbs as baby boomers downsize

JobsJobs

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2. Jobs � Very close to being the #1 issue � U.S. has finally replaced all the jobs lost in the Great Recession � Strong job creation should positively impact residential and MF � Office demand may increase, but employers considering changing technology and preferences of younger workforce � Real estate has to adapt to these changes

� Densification, replacing POS with self-checkout in retail, etc.

EnergyEnergy

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1. Energy � U.S. is now producing more crude oil than it’s importing � Domestic energy production impacting jobs and income growth � Huge variation state to state – resources, regulations, etc. �Most communities involved are experiencing a job boom �We will need more and more and more energy if we are to grow � Can we create enough energy to make changes that matter for the economy?

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Final Takeaways � Don’t forget the cyclicality of real estate

� “Too much” may not be an issue right now, but it will be. It’s all a cycle.

� The most important thing to remember is that these 10 issues are all connected.

Data provided by the Counselors of Real Estate and Dr. Hugh Kelly, principal at Hugh Kelly Real Estate Economics and former clinical professor of real estate at New York University. Read the full alert from the Counselors of Real Estate here.

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