threats in real estate industry

As businesses reopen, owners are being forced to make tough decisions . Workers are now accustomed to these benefits and a return to the office would mean potentially much longer or impossible commutes, less time with family, less flexibility and privacy, and increased costs and complexity, particularly with inflation and rising gas prices. But the COVID benefit programs ended long ago around the time that COVID vaccines became widely available, yet the worker shortages have only grown. Accompanying benefits of less traffic, cleaner air, improved access and mobility, more flexible and full employment, higher quality of life, better work/life balance, higher productivity, and potentially cost savings will further support the continuation of this new hybrid work trend at least in the short term. In addition, cities and municipalities around the world are implementing local ordinances requiring the benchmarking and reporting of commercial buildings energy use, including over 30 cities and four states in the U.S. Several cities have also passed laws mandating GHG emissions reductions from large commercial buildings within their borders, such as New York Citys Local Law 97 and similar laws in Denver, Boston, and Washington D.C. Building owners who do not comply face significant fines in the coming years. Logistics, manufacturing, and health care have also experienced above-average increases in job openings. Vacant retail stores are being repurposed as last-mile warehouses. HVAC and lighting tend to be the largest contributors to energy consumption in office buildings. The market seems to have pivoted mostly on the inherent degree of physical proximity among an asset classs userseven more so than on its lease length. Over the past several years, real estate investments have generated steady cash flow and returns significantly above traditional sources of yieldsuch as corporate debtwith only slightly more risk. The consequences of a major data breach could . By understanding these threats and taking proactive steps to mitigate them, real estate professionals can maximize their chances of success in the years to come. Some landlords are now starting the process of thinking ahead to when the crisis is over. Continued vigilance is warranted on the part of financial supervisors to mitigate such risks. Secondary cities offering a mix of high quality of life, relatively lower costs and/or job generation such as Boise, Austin, Raleigh, Orlando, and Phoenix are also expected to grow by at least double the national pace. An economic slowdown is already underway and the greatest recession risk to real estate is whether rising unemployment and lower household income cuts demand for residential and commercial property.. Increased stakeholder recognition of the importance of social factors like diversity, as well as health and wellness, in commercial real estate are setting new expectations from investors, employees, and the communities in which real estate operates. With continued political uncertainty providing significant headwinds, the ultimate impact on commercial real estate will be greater than if the political risk didnt exist. In the office sector, factors such as price point in the market, tenant-renewal probability, tenant-default probability, local regulations, building appearance due to vacant spaces, and potential reputational risks should inform individual decisions. Meanwhile, many asset owners and operators face drastically reduced operating income, and almost all are nervous about how many tenants will struggle to make their lease payments. Relatively niche asset classes (such as self-storage and cloud kitchens) could see an improvement in their unit economics, as demand density goes up when more people work from home, while other asset classes (such as coliving) may suffer. While the real estate industry has self-admittedly been slow to embrace technology, this is changing quickly. According to RealPage, Inc., Q1 2022 demand as measured by absorption, was more than double new deliveries and at 713,000 units annualized, the highest level of absorption since RealPage started tracking the data in 2000. Other direct results of the outbreak include the need to meaningfully engage with customers and employees on health and safety in physical spaces. Worker shortages are not spread equally across industries, however. If not satisfied with the disclosures, investors and the SEC would be able to challenge what a company deems material. A SWOT analysis evaluates the strengths, weaknesses, opportunities and threats of your real estate investment, new markets or deals. Here are a few of the other factors that make real estate such an exciting target for hackers: Real Estate is a Valuable Sector for . Terms like dual sourcing, near shoring, and friend shoring are being used to describe collaborative efforts to manage the challenges. And universities forced to educate remotely for entire semesters could convince students and other stakeholders that existing tools are sufficient to provide a high-quality education at a lower cost, and a new type of hybrid (onlineoffline) education could become even more widely embraced. Zillow lost $305 million in 2019. Changing regulations can add substantial time, risk, and cost to completing development projects and can also impose new and often burdensome operating restrictions on existing properties. These estimates were extrapolated from the detailed study of the New York City office market where they estimated a $49B value declination by 2029. For example, while relatively few real estate companies were actively developing or pursuing digital and advanced analytics strategies before the pandemic, such strategies can help with tenant attraction and churn, commercial lease negotiations, asset valuation, and improved tenant experience and operations. In the aftermath, government, businesses, and individuals now find they must adapt and evolve in light of this de-concentration, while addressing the increasingly underutilized built environment concentrated in urban areas. Technology has created an ecosystem for rapid advances, disruption and the elimination of previous methods and models. Women and minorities lead in prioritizing remote working, which may cause these groups to miss out on face time that may better support promotions that would fulfill corporate diversity goals. Not all real estate assets are performing the same way during the crisis. Rising interest rates Real estate performance has varied in previous rising rate periods As Forbes has written, rising interest rates can signal a strong, growing economy, which often suggests that real estate is expected to continue to perform well. The UK governments Green Finance Strategy set an expectation that all listed issuers and asset managers will begin reporting emissions and climate risks in alignment with the Task Force on Climate-Related Financial Disclosures (TCFD) by 2022. These IT elements are necessary to provide building-wide control between devices and floors as well as remote maintenance and updates. Many of the new regulations are intended to shape land-use patterns and encourage the production of housing in urbanized areas where transit-oriented and other higher-density affordable housing development is encouraged and incentivized through regulation. To the industry More players in the market More satisfied parties in the industry More innovations can be expected Less chances of misrepresentation More encouragement to genuine buyers and sellers Threats to real-estate industry No doubt, these online portals and e-commerce are providing ample opportunities to the buyers and sellers who want to deal in real-estate and it can flourish the real . Few real estate players have information about these on hand, and even fewer have the right tools, processes, and governance to make decisions. While the longer-term consequences are difficult to predict, the immediate market consequences of the coronavirus crisis have been made clearthe public market sell-off in certain real estate types has been nothing short of dramatic. Public-health officials may increasingly amend building codes to limit the risk of future pandemics, potentially affecting standards for HVAC, square footage per person, and amount of enclosed space. They explored several current threats posed to real estate professionals in 2016. Supported by federal policy, overall consumption recovered rapidly but was distorted relative to pre-pandemic levels. It has also announced a run-off in its balance sheet. While it may be tempting to make reductive assumptions about the coronavirus outbreaks economic impact, the corresponding policy responses at city, state, and federal levels will not be uniform across real estate portfolios. Like nearly every industry, the Covid-19 pandemic has rattled the commercial real estate (CRE) sector. But creativity can also be employed more often, as not all cash-creating activities need to involve cutting costs. Will people decide not to live in condominiums for fear of having to ride elevators? Impacting nearly every aspect of real estate, delays will continue to raise costs and cause realignment in supply chain strategies and warehousing.. For example, if determined to be material real estate investors would be required to provide a list of any properties by zip code with identified physical risks and the percentage of buildings or properties located in flood hazard areas. Those that succeed in strengthening their position through this crisis will go beyond just adapting: they will have taken bold actions that deepen relationships with their employees, investors, end users, and other stakeholders. However, rather than relying on traditional economic or customer-survey-driven approaches, real estate leaders are looking to psychologists, sociologists, futurists, and technologists for answers. Directors and Officers (D&O) insurance is now rising in importance with some cybersecurity lawsuits against individuals and recent SEC Cybersecurity disclosure proposals. ALL FIVE SEGMENTS of commercial real estate - office, industrial, retail, multifamily and hotels - present significant challenges as well as opportunities. Factories cut shifts or go on hiatus, magnifying the supply shortages. Critical site selection has driven decisions across the U.S. in unprecedented ways. Notwithstanding those multiple decades of technology inundation, there have never been suitable technology or cybersecurity skill sets in the entire CRE value chain from design to development and management. Many experts believe this started well before COVID-19 and may last longer than our vaccine and boosters. In the UK, asset values suffered their fastest ever declines, with one index of commercial real estate compiled by MSCI down . This is demonstrated by record high residential sales and opportunistic office space users who are betting on a return to these amenity rich environments. 40% of net new demand through 2035 will occur in just three states: Texas, Florida, and California. Getty Images. It is possible that demand for senior living assets could dampen, or the product could change altogether to meet new preferences for more physical space and more-intensive operational requirements. The goal this year is to identify the Top Ten Issues, how they have evolved, and what their subsequent impact is on commercial real estates various professional disciplines. Be on the lookout for decreased demand for commercial property and higher mortgage rates. As the commercial real estate industry faces an unprecedented era of uncertainty, the influence of inflation and interest rates is the leading concern this year of the 1,000-member organization. Further, the decimation of employment center restaurants and retail, increased crime, increasing taxes, and visible homelessness in once-bustling downtowns heightens concerns about working and living in urban centers when less dense, more livable options exist. For example, while institutional ownership of single-family rentals (SFR) continues to rise, only 2% of SFR are currently owned by institutional investors. Early evidence from China shows some staying power in the coronavirus-driven shift to e-commerce. This is forcing building owners and operators to invest in measures to protect their assets from things they have not needed to consider previously, such as a rising cost of traditional fossil fuel-based energy sources and increased demand for renewable alternative energy solutions. 1. Real estate owners and operators across almost every asset class are considering several potential longer-term effects of the coronavirus outbreak and the required changes that these shifts are likely to bring. Even within a single asset, needs will vary among tenants. Individual firms abilities to weather the storm will depend on how they respond to immediate challenges to the industryparticularly the current declines in short-term cash flow and demand for space, as well as the uncertainty surrounding commercial tenants ability to pay their bills. Decarbonizing real estate. Both policies will place upward pressure on long-duration Treasuries, as well as cap rates (absent an offsetting increase in demand). Nearly every landlord is preparing for the effects of the downturn, when scores of tenants across asset classes will ask for lease concessions or abatement. Single-family completions, on the other hand, were still running just shy of their long-term average of one million units per year, and well below the peak 1.6 million pace of 2006. As discussed elsewhere in our Top Ten report, a slowing economy would reduce all types of real estate transactions, from leasing to lending to sales, impacting all commercial real estate professionals whose business depends on transaction volumes. Consumers forced to shop online because of closed malls and shopping centers may permanently adjust their buying habits for certain categories toward e-commerce. Now as workers confront the resurgence of COVID moving into the summer of 2022, they appear to be even more reticent to return to work given what they believe are viable remote work alternatives. As of this writing, macroeconomic signals are decidedly mixed. Will employees demand larger and more enclosed workspaces? To ensure banking-sector resilience, stress-testing . Most also agree that Covid accelerated trends that were already emerging, including remote work, online retail, and migration to warmer climates and tertiary urban markets. Second, there is often a mismatch between the open positions and the workers available to fill them. As more users adopt these digital-first products and services, users expectations will be raised, and players that provide a differentiated post-crisis experience will stay ahead of the curve. Materials shortages such as wood, steel, computer chips and electrical supplies all influence commercial real estate decisions today. Chinas zero-COVID policy and the related lockdowns have driven production and port activity to levels not seen since the beginning of the pandemic. Throughout, acting quickly and smartly will help determine the fate of players not only in these challenging times but also as the industry emerges from the current crisis and inevitably reinvents itself. Its a frustration we are all dealing with personally from the grocery store to the home improvement centers to our automobiles. This is not only power plants and dams but also commercial real estate and all non-single-family use types. Other sectors will likely invest in labor-reducing technologies in this expensive labor market including automation, robotics, and lesser but very effective mechanisms including QR code restaurant menus, telemedicine, contactless hotel check-in, and greater use of chatbots to fulfill customer service needs, all of which may increase efficiencies and reduce repetitive and lower-wage work functions. Before the crisis, the real estate industry had been moving toward digitizing processes and creating digitally enabled services for tenants and users. Job growth remains strong with upward revisions typical. These pandemic supply shocks have driven inflation well above the Feds stated policy of two percent. Russia is one of the largest exporters of energy and food commodities, with Russia and Ukraine exporting 30% of the worlds wheat, a key product in the worlds food supply. Sectors like the automobile industry and electronics manufacturing havent recovered from the initial phase of the pandemic, and these new challenges are adding to the stress. Continued geopolitical uncertainty provides significant headwinds to the economy. Wheat futures rose 40% year-to-date and 57.8% over the last 12 months. Instead of traveling and going out to eat at restaurants, consumers across the world are tightening their purse strings to spend only on essentialsprimarily food, medicine, and home suppliesand getting these delivered much more often. Many have already shifted their mindsets toward finding single assets at bargain prices, though the current difficulty in accessing capital markets has delayed action, and supply may remain constrained as potential sellers wait for valuations to return. 1. All this helps explain why so many firms cannot hire all the workers they need, even though the size of the labor market is virtually back to its pre-pandemic level, down less than 1%. On the upside, according to IHS Markets monthly GDP indicator, Aprils GDP increase more than offset Marchs decline, which itself was revised upward slightly. Proximate economic threats remain the sustained pandemic supply-chain problems and policy errors. The economy has regained all but about a million of the 22 million jobs lost during the initial lockdown. On the continent, European Climate Law has codified the EUs commitment to reaching climate neutrality by 2050 and the intermediate target of reducing net greenhouse gas emissions at least 55% by 2030 compared to 1990 levels. Geopolitical risk and the implications of hybrid work round out the top three. This may make the practice of communicating as a company-level brand (rather than property-level brand) more common, speeding up an existing market trend. There is always the next recession, but absent an unforecastable stock, a recession is improbable in the near term. We also realized how dependent we were on the efficiency of production from China. the threat and risk landscape? The State of California has mandated that local governments must update their housing elements of their general plans to affirmatively plan for the production of housing to meet jurisdictionally specified future regional housing needs. As of April 3, by one estimate, the unlevered enterprise value of real estate assets had fallen 25 percent or more in most sectors and as much as 37 percent for lodging (the most extreme example).1REITs amid a pandemic, Green Street Advisors, April 3, 2020, greenstreetadvisors.com. Some players will feel an even greater sense of urgency than before to digitize and provide a betterand more distinctivetenant and customer experience. All levels of managementincluding those at the property level and company levelare beginning to identify efficiency levers and when to pull them based on the underlying performance of properties and the business as a whole. While a single policy across all tenants and properties may be easier to implement, decisions must be made for each situation, starting with a consideration of tenants safety and well-being. These combined complications have caused many real estate leaders to focus on acquisitions of operating companies, large asset portfolios, and public real estate investment trusts. Properly implemented, a set of clear protocols along with structured, fact-based decisioning will ensure fairness and procedural justice for tenants and help operators communicate their actions with key stakeholders, including tenants, investors, and lenders. The depth and breadth of economic impact on the real estate sector is uncertain, just as the scale of human catastrophe from the pandemic is yet to be seen. However, an unexpected shift, the Great Decentralization, took many by surprise in the wake of this latest global disruption. For leading operators, the need to overcommunicateto both make sure they fully understand tenants needs in this moment and help protect everyone in their ecosystemis leading to some changes in behavior. More problematic for employers: There are almost twice as many unfilled positions as unemployed workers to fill them, equating to a shortfall of more than five million workers. Proofpoint's DeGrippo says the five top threats the real estate industry and potential home buyers face are: Banking trojans: Malware that gets in between the user and an online banking. Like the anticipated reduction of office space that may occur if remote work continues longer term, it is anticipated that colleges and universities may reduce their real property as more online delivery and remote work makes large campuses obsolete; some institutions may fail altogether. This has created an unprecedented crisis for the real estate industry. Older buildings are seeing new life and leasing opportunities. The COVID-19 crisis has accelerated the need for those strategic changesand highlighted that those that havent yet made such investments will probably need to catch up quickly. Affordability continues to be a growing and widespread issue which has been amplified by recent double-digit price increases in both the owned and rented segments of the market. Inflation and Interest Rates: Some Clarity To Mixed Macroeconomic Signals By Timothy H. Savage, Ph.D., CRE "An economic slowdown is already underway and the greatest recession risk to real estate is whether rising unemployment and lower household income cuts demand for residential and commercial property." During the pandemic, market volatility exploded to levels not seen since the global financial crisis. So where are all the workers? Development projects have struggled for decades with the uncertainty of WOTUS as applied to wetlands, streams, and similar seasonal water features. This is not a so-called smart building or Internet of Things (IoT) problem, which continues to stack up risks, but rather a 40-year build-up as our main systems (e.g., HVAC, elevator, lighting, access control, parking) require computers, networks, and Internet connections. The 10-year U.S. Treasury fell to an historic low of 54 bps in March 2020, and the average 30-year fixed residential mortgage fell to approximately 270 bps. By the 2010s, that figure had become completely out of balance to just one unit for every 2.6 jobs. Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions. In March 2021, the SEC launched an ESG Enforcement Task Force to identify material omissions or inaccuracies in issuers disclosure of climate risks and in April issued a risk warning to caution investment advisers, registered investment companies, and private funds that their ESG statements will be more heavily scrutinized. As commercial real estate practitioners, weve been tasked with the challenge to adjust how location decisions are made. As with job openings, BLS is reporting an unprecedented number and level of workers (as a share of all workers) quitting jobs each month. All companies, public and private, are working hard to navigate the immediate crisis with respect to staff, tenants, and end users of space, while also facing tough business trade-offs. These regulatory shifts at the federal level are also impacting the implementation and enforcement of the Migratory Bird Treaty Act (MBTA), Endangered Species Act (ESA), and the National Environmental Policy Act (NEPA). Given complex supply chains, the pandemic was also a supply shock with a substantial inflationary impact. Indie brokers will need to need draw on reserves of optimism to remain pragmatic in the face of the unknown. To decarbonize, industry players can take the following steps: Understand the starting point. The Covid disruption and the resulting shift to remote work may well be the bellwether for future resilience, forcing a move toward a more decentralized, diversified, and adaptable built environment and geographic land use pattern across all regions. The real estate industry globally, nationally as well locally is increasing in terms of job prospects and other opportunities; the industry is also filled with diverse professions working. If inflation is exacerbated by geopolitical volatility, something that interest rate policy cant manage, then the impact of that volatility becomes more significant. According to recent research, 88% of contractors report moderate to high levels of difficulty finding workers and 35% have turned down work due to labor shortages. Sensors in lighting, HVAC equipment and managing temperature controls, and occupancy sensors that determine the demand for space and utilization provide actionable insights to offset energy cost increases by automation and improving the efficiency of managing space and energy consumption. Remote work potentially widens the digital and economic divide, causing a need for re- and up-skilling of lower tech workers. In the prosperous year prior to the pandemic there were about 20% more open positions as unemployed workers, and the ratio had never reached 25%. The National Association of Realtors this week released a free report detailing 50 threats, risks and challenges the real estate is facing today and will face in the near future. It also potentially complicates achievement of equity goals. In the past, few properties and companies took a lean-enterprise mentality toward capital and operating expenses. In contrast, Opendoor experienced a 46% drop in revenue in 2020 to just under $2.6 billion. Real estate owners and operators seek to plan, develop, and operate real estate assets in a regulatory environment that is largely free from rapidly changing regulatory compliance requirements and development standards. Suddenly, when covenants were lifted, the real estate industry recognized a new, untapped market could be targeted for home sales. This long-term trend may accelerate even faster after the crisisespecially as many previously struggling brands are tipped over the edge into bankruptcy or forced to radically reduce their footprint. Employers will need to triage different work functions to specific locations, scheduling office meetings during the middle of the week while pushing phone and computer-based activities towards the shoulders of the week when workers prefer to stay home. Those that do adopt lean practices and eliminate inefficiencies, however, can buy themselves a little more time to work through uncertainty. This de-concentration of workers will cause government and businesses to pursue resource deployment models that support a more dispersed economy while repositioning and backfilling the existing built environment designed around now-less-relevant constructs of centralization.

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