AI, operational real estate, and office transformation are among the commercial real estate trends garnering Goodwin's attention ahead of the annual Real Estate Capital Markets (RECM) conference.
After a recent downturn, brighter days may be ahead for the commercial real estate industry.
Private real estate investment funds remain very attractive to investors around the world, with 39% of them intending to put more money into private real estate this year compared to last year, according to investment publication site PERE.
The Fed could lower interest rates in 2024, making financing more affordable and encouraging real estate development. That could boost the overall economy by lowering borrowing costs, which in turn could boost business expansion and demand for commercial real estate.
At the RECM conference, co-hosted by Goodwin with Columbia Business School on March 27, real estate thought leaders will provide insight into the factors driving real estate growth this year and beyond.
Here's a breakdown of some of the pressing real estate trends we're considering for the conference.
Real estate companies embrace AI
A key driver of growth will be AI, especially given the proliferation of generative AI (gen AI) tools, the need for infrastructure and real estate to support AI expansion, and the increasing availability of meaningful data analytics. is important.
A 2024 Deloitte survey of global real estate leaders found that real estate companies are far more likely to spend money on AI than other emerging technologies. Seventy-two percent of survey respondents said their companies are piloting, starting to implement AI, or are in production. By comparison, just over half of companies say they are investing in the Metaverse.
Consulting firm McKinsey estimates that Gen AI could add between $110 billion and more than $180 billion annually to the global real estate industry. Real estate companies and investors are leveraging the power of Gen AI to significantly speed up investment decisions, help prospective tenants visualize themselves in properties, and improve customer service. Masu.
Investors can target fast-growing managed real estate sector
Operated real estate (OpRE), a real estate investment where management and performance directly impact returns, continues to expand rapidly. OpRE investors may manage hotels, hospitals, or senior housing facilities and earn investment returns associated with real estate operations. For example, the economic benefits of investing in senior housing depend on the quality of care provided.
Many of OpRE's investments, such as medical facilities, are expected to remain strong regardless of economic conditions, as they provide services that are always needed. Some may benefit from long-term demographic trends. As the US population ages, demand for senior housing services will continue to increase, regardless of economic ups and downs, for example.
OpRE investors are likely to turn to renewable energy as environmental, social and governance initiatives remain industry priorities. For example, hotels can increase their use of renewable energy to appeal to greener guests and support the transition to a low-carbon economy.
more offices converted
Remote work is much more common than it was four years ago when the pandemic hit. Perhaps even more surprising, research by Stanford University professor Nicholas Bloom and colleagues shows that people are spending more time working from home than they did two years ago, when the pandemic was still disrupting return-to-office plans. It is said that there has been only a slight decrease.
The shift to remote and hybrid work is increasing office vacancy rates while creating new opportunities for cities to reimagine their downtowns. According to commercial real estate investment firm CBRE, many older buildings without modern amenities are likely to be converted into apartments or condominiums. The federal government aims to encourage this office-to-residential conversion through subsidies, low-interest loans and tax incentives.
Increased office-to-residential conversion in downtown business districts could offset some of the impact of office vacancies. Momentum is already building. CBRE predicted that approximately 100 offices in major U.S. cities will be converted to other types of space by the end of 2023, up from 56 office conversions in 2022. Almost half of the office conversions predicted last year were multifamily projects.
Vacant office buildings also present investment opportunities. Value-add funds can acquire vacant offices and renovate them to increase lease value, according to investment data firm Preqin.
Retail remains resilient
As the pandemic subsides, U.S. shoppers have returned to stores and restaurants in earnest. Meanwhile, available retail space remained limited, reflecting a lack of new construction due to the 2008-2009 recession.
The retail industry has remained strong over the past year despite rising interest rates, as a combination of low supply and strong demand has lowered retail vacancy rates. U.S. shopping center vacancy rates reached 5.3% in the fourth quarter of last year, the lowest since 2007, according to Cushman & Wakefield Research.
The outlook for retail remains positive. Neighborhood stores and suburban shopping centers in particular have benefited from the shift to remote work. More and more consumers are visiting stores near their homes on weekdays.
Commercial real estate market defies expectations
A series of bank failures last spring led some analysts to predict that a commercial real estate collapse was imminent. Such a crisis never materialized, and may never materialize.
One sign that financial stress is minimal is that delinquency rates, or the percentage of commercial loans that are past due, remain historically low despite increasing last year. The low delinquency rate is consistent with other signs of economic strength, including low unemployment and faster-than-expected growth in gross domestic product.
Moody's Analytics analysis shows that while some local banks continue to face challenges as loans mature, several These factors may help reduce bank risk. Additionally, commercial real estate is a diverse market, with some sectors thriving, such as retail.
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