The “2013 State of the Real Estate Industry” luncheon and briefing held on July 17 — organized by NAIOP and hosted by the National Real Estate Organizations (NREO) — brought together trade associations, industry consultants, and nearly 100 congressional staffers to focus on the impact of real estate as a driver in economic growth.
Representatives Richard Neal (D-MA) and Michael Turner (R-OH), who co-chair the Congressional Real Estate Caucus — a bipartisan educational organization comprised of members of Congress to address the impact of federal policy on real estate — opened the briefing by calling for strong bipartisan congressional support of the real estate industry, citing the myriad of economic and social impacts in communities across the country, particularly through home and commercial property ownership.
“Congress needs to understand the potential ramifications of changing the homeowner mortgage deduction in our tax code and the devastating impact that would have on an economy still trying to recover,” said Neal, who founded the caucus. “There’s no debating the fact that home and commercial ownership are important factors in growth,” added Neal. “I continue to believe that if someone has a job and owns real estate, they have a vested interest in the future.”
Referring back to his experience in local government, Turner echoed the strong sentiment with a unique hands-on perspective: “As a former mayor of a fairly decent-sized city, I have seen firsthand the financial impact of real estate ownership on a city’s revenue stream.” Turner explained how funds from property taxes are used to improve community projects and services, and urged the crowd to remember one simple thought: “before there is a job anywhere, there is a real estate project.”
Industry experts from both the residential and commercial sectors shared their insights into the complex nature of real estate transactions, the dynamics that led to the financial crisis in 2008, and the forces that have played a role in the industry’s upswing since then.
The State of Commercial Real Estate
The commercial real estate industry has gone global, as “local developers and brokers now work with global, multinational companies and investment institutions,” said William Maher, head of research and strategy, North America, La Salle Investment Management, Inc.
Commercial construction is currently at a 40-year low and is not as significant an economic indicator as it is in residential real estate. Instead, functions like building operations and management, leasing, selling, and financing account for major economic impacts to commercial real estate. “Construction is a function of job growth, and if you tell me where the job growth is, I’ll tell you where the best real estate investment opportunities are,” continued Maher.
Some of today’s major drivers in commercial real estate are the technology and energy markets, and cities considered “gateway markets” are experiencing rapid growth as well. Office rents in suburban and downtown Houston have increased more than 21 percent and 14.9 percent, respectively — the result of demand and investment from energy firms, according to a new report by CBRE. Cities experiencing a surge in investment activity include Boston, New York, San Francisco, Seattle, and Washington, D.C.
Medical buildings continue to be popular commercial real estate investments, and that growth often
is generated by the sale of small-scale physician practices to larger medical institutions. Implementation of the Affordable Care Act is expected to continue to affect growth in this area. Logistically, the number of insured health care consumers undoubtedly will rise, and that expansion will require additional practitioners and more physical space. Maher noted that compared to hospitals, medical office buildings provide space that is more effective for treating the vast majority of patients and conditions in our health care system.
E-commerce continues to transform the retail segment. Boutique and mom-and-pop stores now can reach the same quantity of customers as big-box stores. As a result, “we’re seeing shopping centers transition and become more diverse in their store offerings,” added Maher. Factor in online retail giant Amazon.com’s potential new business approach of providing customers with same-day delivery, and the traditional retail landscape in a given city could soon be comprised of multiple warehouse and distribution facilities located minutes from residential neighborhoods.
The State of Residential Real Estate
Progress continues to be made on the residential side, as builder confidence levels are now exceeding 50 percent for the first time since 2008, noted Rick Judson, chairman of the National Association of Home Builders and owner of Evergreen Development Group in Charlotte, NC. In addition, major metro markets have experienced their sixth consecutive month of improvement. “Supply and demand drive this country, and with low interest rates and greater availability of product, the housing sector can stay strong,” said Judson. “And, in a healthy housing industry, you’re going to have a good economy.”
Just under 1 million housing starts have been recorded in 2013, and amidst signs of continued improvement, even the most optimistic still recognize uncertainties in the market. About 20 percent of products that go into a house are currently in short supply. Carpet manufacturers and lumber yards, many of which had to close their doors completely during the recession, have not yet returned to full capacity. And with nearly 22 percent of the residential construction workforce comprised of immigrant labor, pending immigration reform legislation in both the House and Senate could deliver another blow.
In closing, Judson reminded attend-ees to consider the big picture. “What’s relevant is the value of
your property, not necessarily all the gadgets and technology inside it that quickly become outdated.”
NREO is an industry coalition of 18 trade associations and professional societies that work together to advance responsible government policies and produce an economic climate fostering long-term growth and creating jobs. Through educational forums, NREO works with lawmakers to identify, analyze, and develop robust policy recommendations supporting these goals. The following organizations are members of NREO:
Associated General Contractors of America
American Hotel & Lodging Association
American Institute of Architects
American Land Title Association
American Resort Development Association
Building Owners and Managers Association, Intl.
CRE Finance Council
International Council of Shopping Centers
Manufactured Housing Institute
Mortgage Bankers Association
NAIOP, the Commercial Real Estate Development Association
National Apartment Association
National Association of Home Builders
National Multi Housing Council
National Association of Real Estate Investment Trusts
National Association of Real Estate Investment Managers
National Association of Realtors
The Real Estate Roundtable