What is going to have the most impact on the real estate industry over the next 12 months?
Recently, REBusinessOnline.com asked readers, “What is going to have the most impact on the real estate industry in the next 12 months: interest rates, energy costs, war or security?” The majority of respondents chose interest rates (68.5 percent); 19.4 percent chose energy costs, 6.4 percent chose war and 5.8 percent chose security. We have included a sample of comments to show the gist of your opinions. Thank you to everyone who contributed!
How will interest rates affect the real estate industry?
Readers who believe that interest rates will have the greatest effect on the real estate industry are generally in agreement regarding the correlation: rising interest rates will have a negative effect on the industry and falling or stable rates will have a positive effect. Approximately 40 percent of readers who answered this question expect the former, and almost 10 percent expect the opposite results. Still, nearly half of respondents made no judgment about the future of interest rates. These respondents simply indicated that interest rates are more likely to affect real estate than energy costs, war or security.
“Rates will rise, having somewhat of a dampening effect on the real estate industry.”
“Interest rates will have a direct impact on cap rates, raising them and lowering the volume of sales activity.”
“I think the Fed will likely jack up interest rates by at least fifty basis points over the next two quarters. The effect of this will vary from region to region… The newly developing markets that really need ‘new money’ will be harder hit by this, as community-type banks will not be able to lend money as easily… Chances are, we’ll see some kind of cool down in new development in developing markets.”
“The real estate market should rebound next year if interest rates stay level or are lowered.”
“I think interest will be relatively stable and the industry will continue to experience growth in all sectors.”
“The rates are at an all time low, and it appears that they will stay low next year. When rates are low, available real estate flourishes.”
One reader believes that the talk of interest rates will have more of an effect than the rates themselves: “Fear of rising rates, which will not rise as much as projected, will cause concern and slow down investment a bit. However, the fundamentals will remain good, and the market strong overall.”
How will energy costs affect the real estate industry?
Readers who believe that energy costs will have the greatest effect on the real estate industry overwhelmingly predict that the results will be negative.
“As gas and electricity costs increase, consumer expenditures will decrease.”
“High energy costs leave less money for the consumer to spend, which impacts retail — one of the biggest areas of growth.”
“Gas prices will force consumers to shop locally.”
“Higher energy costs, whether natural gas costs or gasoline costs, will impact operating costs for owners and tenants, affect buying habits of consumers for retailers and restaurants, and slowing consumption of goods and services.”
Others see the potential for rising energy costs to promote environmental awareness.
“More and more companies are looking at sustainable buildings.”
“[There will be] greater focus on energy efficient design and construction with an increase in LEED projects.”
How will war affect the real estate industry?
Many respondents are concerned with the effects of wartime instability and uncertainties on the real estate market.
“I think [war] puts the industry in a state of flux… people are afraid to make a move when there is unrest.”
Others cite the national deficit incurred by war as a factor that will affect the entire economy, the real estate market included.
“[It causes a] domino effect: increase deficit, reduce domestic spending, impact interest rates, decrease real estate investment.”
“The government will need to borrow billions to support the war, which will cause rates to rise and money to be taken away from private borrowing such as real estate development and purchases.”
How will security issues affect the real estate industry?
Though one reader says “security never loses its value,” and another acknowledges the increased likelihood of long-term decision-making that security brings, most respondents focused on the potential dangers and fear of a lack of security.
“The treat of terrorist attack, combined with the lack of preparedness by mall developers, has the potential to impact customer draw.”
“[Another terrorist attack] could send the economy into a tailspin… which would have an obvious negative effect on real estate, expansion and leasing.”
“In terms of security, the insurance costs for terrorism are having a chilling effect on the commercial real estate industry.”
Other factors that will affect the real estate industry
Some readers introduced other factors that they believe will greatly affect the real estate industry in the coming year. Among these factors are insurance costs, construction costs, taxes, job security and the economy.
“Insurance costs have always been a relatively minor part. Now the minor will become major and will affect the total ownership expense, thus affecting value.”
“The larger impact may come from rising construction costs and increasing rents that will offset the dampening effect of higher interest rates.”
“Actually, I think taxes or the reduction thereof would have a larger effect — people will spend more if they get to keep more of what they earn.”
This survey was conducted in conjunction with a published excerpt from a round table of institutional retail investors hosted by REBusinessOnline's sister publication, Shopping Center Business, and Trammell Crow Company's East Coast Retail Investment Team. To read the excerpt, click here.
To search the article archives, please first select a category from the drop down menu below:
|
|
|
