Posted on July 5th, 2015
In the Boston real estate market, there are several critical issues that will impact the Massachusetts real estate industry over the next 10-30 years according to the Counselors of Real Estate®, which is professional association of top leaders in the real estate industry. This organization is attempting to engage leaders in the Boston real estate market with a series of white papers they will develop over the next several years to address the issues within the industry.
The Aging Population
The aging population is a concern in the Boston real estate market. As the population ages the housing market will be impacted as will retail sales and health care. Aging will directly impact the demands for real estate but will also impact capital as pensioners move to being net users of capital instead of net contributors. Most people that are aging already have homes and may not want to buy new ones or may downsize.
The Funding of Public Employee Retirement Systems
In the Massachusetts real estate industry, the underfunding of local and state retirement system which is in the trillions of dollars provides a lot of challenges to the services that relate to the real estate market. Ther may not be enough cash in government assets in the future that can be used as it may shortchange the future generations.
Student Debt Burdens
The average student debt is now $20,000 and in the Boston real estate market this is challenging. These individuals don’t have the capital they need to spend on housing or may opt for housing which is less expensive such as rentals in the future as they try to pay down ballooning debts.
US Competitiveness and Infrastructure Funding
Public-private partnerships with local and state governments are now being viewed as replacements or potential supplements for Federal funding for infrastructure improvements in the near future. This could cover trillions of dollars of deferred maintenance for exiting assets.
Retail, Changing Office, and Industrial Demand
In the Boston real estate market there are reductions in the amount of office space needed by organization due to technology and downsizing. The Internet is causing a change in buying patterns so less retail store space is needed. The East Coast port expansion and the Panama Canal expansion are changing warehousing needs.
Real Estate Capital Markets Liquidity
Existing over allocations to real estate, billions of dollars of real estate loans that need refinancing in the next 3-7 years, and concerns about the scale of the return of the CMBS market have put capital limitations on banks because of Dodd Frank legislation which creates uncertainty about access to capital. Properties in secondary markets, smaller properties, those properties that have weak borrowers, vacancy rates, rollover of tenants early, and other risks are already impacting the access the capital.
Global Change and Uncertainty
The U.S. budget crisis and political gridlock as well as the ongoing financial crisis in Europe is impacting housing prices. The slowdown in China’s economy as well as slow growth in the Middle East is also playing a role. There’s no way to tell how all of this will impact real estate in the future.
Integration of Sustainability
Sustainability is now no longer just a gimmick and it’s a part of corporate governance, reporting systems, management, supply chains, and how many companies see their basic functioning. Real estate businesses must keep up with this and show how they are creating sustainable properties. This means that real estate companies will need to adapt in the future.
Low Cap Rates
The cap rate for properties are back to 2007 levels which is troubling. If cap rates decompress and interest rates increase there could be a decline in the value of housing which would impact those buying a house in Boston.
Civil Discord and Political Gridlock
Many challenges and issues require that there be a broad consensus to resolve then, Ther may be too much political gridlock and not enough cooperation to address concerns. If the real estate industry is to thrive these issues must be addressed moving forward.