Real Estate

Commercial and Residential Trends

The Urban Land Institute (ULI) highlighted some of the following trends in its 2023 real estate report. The fastest growing markets for real estate prospects overall are currently in these 10 cities: Nashville, Dallas/Fort Worth, Atlanta, Austin, Tampa/St. Petersburg, Raleigh/Durham, Miami, Boston, Phoenix, and Charlotte. Home sales as well as home rentals are slowing down after strong growth from 2020 into 2022, due to the federal government's hiking of interest rates in the spring of 2022.

The ULI noted other trends for 2023 and beyond in its report. Post pandemic, the property market fundamentals are becoming normal again. As more people are traveling, going to restaurants, gyms, live entertainment, etc., the hotels and retail sectors may heat up while residential and industrial properties may cool down. How and where people work, live, and recreate has changed since the pandemic and this is expected to continue. Working remotely rather than in offices has become more normal. E-commerce grew during the pandemic and has continued to grow, which has affected physical retailers. It's uncertain what the future holds for shopping centers and physical retailers but with the trend of online shopping, fewer brick-and-mortar shopping centers will survive.

The undersupply of homes continues to be an issue in the real estate industry throughout the U.S. Home prices and home rental prices have soared, far out of proportion to people's incomes. As stated in the report, "housing affordability has fallen to its lowest level in over 30 years. ... Spiraling mortgage rates have pushed the homeownership bar further out of reach for a growing share of households." Adding to this ongoing problem of undersupply of homes is the government policies that limit new supply or increase construction costs, and constructing more housing is not easily achieved.

Other trends the ULI report highlights include: Real estate investors and developers now focusing on industrial and multifamily housing; "best-quality assets in sectors undergoing significant demand disruption, especially retail and office"; and the real estate subsectors that are narrowly targeted, such as student housing, and newer asset types, such as single-family rentals.

Sustainability continues to be a common aspect of the real estate industry, as it is now intrinsic to governance, management, reporting systems, and other basic corporate functions. The demand for energy-efficient, green properties is on the rise, and a growing number of builders and developers are specializing in sustainable development and construction.

The growth of e-commerce has also increased the demand for logistics space by supply chains. The role of the location of logistics spaces has become more important. "Demand for buildings that can facilitate the final step of the supply chain, also known as Last Touch™, is surging, particularly in 24-hour cities with large, high-income populations. Given the difficulty and cost of bringing new product online in these locations, effective rents in Last Touch–capable buildings have been growing...However, supply is constrained by available land."

Real Estate Investment Trusts

Real estate investment trusts (REITs) continue grow. REITs are corporations that are established to derive most of their revenue by owning or managing real estate or mortgages secured by real estate. The Internal Revenue Service won’t tax the REIT company if it pays 90 percent or more of its taxable income, not including capital gains, as dividends to its shareholders. Domestic REITs have grown over the past 30 years. As of November 2023, the National Association of Real Estate Investment Trusts (NAREIT, www.reit.com) reports that approximately 150 million Americans own REITs through their retirement savings and other investment funds, and 1 million homes in the United States are financed with the help of REITs. NAREIT reports that "REITs of all types collectively own more than $4 trillion in gross real estate assets across the U.S., with public REITs owning approximately $2.5 trillion in assets."

Some REITs are private and are not traded on the public markets. REITs may invest in all types of real estate (e.g., hotels, malls, office buildings, even trailer parks!) directly through property purchases or mortgages. However, many REITs specialize in certain property types (e.g., companies like Equity Residential or Healthcare Realty Trust, Inc.) or even in certain geographies (regional, national, or international). REITs have diversified over the years and brought institutional capital into innovative sectors, such as data centers, telecommunications towers, self-storage, health care, lodging, billboards, and timberlands.

REITs are run like most other public companies, with corporate officers and a board of directors who answer to stakeholders. Management makes decisions on which properties to buy and to sell and the directors often have ownership positions themselves. REITS can also be regional, national, or international in focus.

The Motley Fool reports that, in 2023, the largest real estate investment trusts, by market capital, include Vanguard Real Estate II Index Fund, Prologis, American Tower, Crown Castle International, Equinix, and Public Storage. American Tower owns and operates communications towers. Vanguard Real Estate II Index Fund invests in companies that buy office buildings, hotels, and other real estate property. Prologis is a logistics real estate company, involved in the transportation and storage of items. Crown Castle International owns and operates wireless infrastructure, such as on rooftops and land under towers. Equinix is a digital infrastructure company. Public Storage has thousands of self-storage properties in the United States and Europe. Equinix operates data centers.

Technology and Social Media

Technology is continuing to have a tremendous effect on the real estate industry. In its report “Emerging Trends in Real Estate” report, PricewaterhouseCoopers (PwC) revealed that "to cope with speed requirements and competitive exposure, real estate has been incorporating and developing new technology. Platforms for fintech–a portmanteau of 'financial technology'–have been introduced to automate routine functions...blockchain technology is only one of the fintech tools emerging for the real estate capital markets." Blockchain is a digital record of data, gathered in blocks, that was originally designed to be used for bitcoin.

A growing number of home buyers are using mobile devices and real estate apps to research listings and locate homes. In 2021, approximately 76 percent of people who searched for a new home used a tablet or other mobile device to visit real estate Web sites and apps, according to a National Association of Realtors report. Approximately 95 percent of the licensed realtors surveyed reported that they use e-mail daily, and nearly 60 percent use social media apps daily, in their work. Younger and older Baby Boomers used online video real estate Web sites more frequently than other age groups. Wearable technology, such as the Apple Watch, also has people connected for longer periods of time. To meet this increased online demand, real estate professionals are now more tech and social media savvy than ever before. They have their own blogs and write articles on real estate related Web sites or on their own sites. The top technology tools that have given real estate professionals the highest quality leads are (by order of effectiveness): social media, their local multiple listing service (MLS) site, and customer relationship management (CRM). Real estate professionals also reported that the technology tools provided by their brokerage that they found to be most helpful in their work are: e-signature, lockbox/showing technology, transaction management, and video conference. The rise of technology tools powered by artificial intelligence (AI) is another trend that is affecting the real estate industry. Real estate professionals can use AI to research and evaluate real estate market conditions, property values, and hone in on opportunities for real estate investments.

Real estate companies have also enabled people to take virtual tours of properties through 3-D photography. People don't want to spend as much time as they have in the past traveling with real estate agents to view various properties. They can now use their laptops, tablets, and smartphones to find the spaces that interest them and virtually tour them at any time of day or night.

The use of drones to capture aerial images has also grown in popularity in the real estate field. Controversy over drones continues due to privacy issues; still, they are useful for taking high-quality images that are more affordable than having to hire a helicopter or plane. High-end real estate companies use drones to capture high-rise buildings and waterfront properties. According to an article in Zillow.com, drones are useful for "showing homebuyers what the entire property looks like, as well as the neighborhood and surrounding area, and allowing homebuyers to visualize the walk to school or the drive home."