Inadequate infrastructure and a lack of housing supply, are the two biggest challenges facing the U.S. commercial real estate market, according to The Counselors of Real Estate's semi-annual Top Ten Issues Affecting Real Estate report.
"Inadequate infrastructure creates a hard ceiling to economic development, and real estate values are tied to sustainable growth," said Jeff Levine, senior vice president of APEX Commercial Group, and a Counselor of Real Estate. "The U.S. must invest in infrastructure to compete globally, but right now it is lagging other nations on infrastructure investment."
The report cites that roads, bridges, tunnels, railways, airports, the power grid, water systems, and levees are giving way with greater frequency. While the White House and Congressional leaders have discussed funding of up to $2 trillion, it remains unclear what action the government leaders will be taking in the future.
Housing in America is ranked second on The Counselors' list, with the gap widening between increasingly expensive supply and the decreasing level of ability to pay. The underlying causes can be found both on the supply side and the demand side of the housing equation.
"Housing affordability is threatening the stability of the middle class, which will hit other parts of the economy as well," said Levine. "Additionally, the new limits on the deductibility of state and local taxes are affecting both urban and suburban homeowners, while the liquidity of the housing market has been compromised by the difficulty of the Baby Boomer generation in finding buyers for the homes that represent a major portion of their net worth."
Weather and climate-related risks rounded out the top three issues of concern for The Counselors, as real estate investors are requiring that climate risk be assessed and factored into return projections and day-to-day decisions. The report states weather and climate-related risk has emerged as a new—and likely permanent—aspect of fiduciary duty and what it means to assess, disclose and manage these risks for real estate investments.
"Real estate investors can no longer rely on historical performance to predict future returns," Levine said. "With the frequency and intensity of events increasing, weather and climate-related events present physical and operational risks for real property."
The remaining issues identified by The Counselors of Real Estate are The Technology Effect, End-of-Cycle Economics, Political Division, Capital Market Risk, Population Migration, Volatility and Confidence, and Public and Private Indebtedness, respectively.
The Top Ten Issues Affecting Real Estate™ are developed by The Counselors of Real Estate's External Affairs Committee, with issues identified, debated and voted on by the general membership.