. Assets that have greater human density seem to have been the hardest hit: healthcare facilities, regional malls, lodging, and student housing have sold off considerably. Higher energy costs, especially over an extended period, can also have a negative effect on real estate. The unemployment rate quadrupled between March and May 2020. Practically overnight, physical distancing and the lockdown of physical spaces have magnified the importance of digitization, particularly by measures such as tenant and customer experience. Balanced collaboration between asset owners and managers and employers with a focus on the long term will be crucial to provide flexibility in the game of musical chairs that is underway across real estate sectors. The quit rate is now fully 25% higher than before the pandemic. So where are all the workers? Technology has created an ecosystem for rapid advances, disruption and the elimination of previous methods and models. Economists estimate that, as a legacy of the pandemic and decentralization, 50% of the workforce will work remotely or in a hybrid manner in the future. Occupiers will lease less space if they lack the workers to run their businesses.. Fiscal policy included extended UI payments, the 2020 Paycheck Protection Plan, and the 2021 American Rescue Plan. According to Pew Research, in July 2020, during the height of the pandemic, many young adults (52%) resided with one or both parents, the highest level since the Great Depression. In 2021, the U.S. Securities and Exchange Commission (SEC) acknowledged the growing demand by investors for ESG and climate-related disclosures. The vast majority are already back on the job. These attacks are expected to continue, and resources are focusing on the protection and mitigation. By 2025, it will contribute 13% to country's GDP. Proximate economic threats remain the sustained pandemic supply-chain problems and policy errors. While the focus is on the most visible geopolitical risks, the Ukraine and Russia war and the most recent lockdowns in China, these are not the only political risks affecting the broader markets. When you add the impact of other commodities involved in automobile manufacturing such as aluminum, copper, and nickel coming out of Russia and Ukraine, more inflationary pressure builds. In contrast, Opendoor experienced a 46% drop in revenue in 2020 to just under $2.6 billion. To respond to the current and urgent threat of COVID-19, and to lay the groundwork to deal with what may be permanent changes for the industry after the crisis, real estate leaders must take action now. Labor shortages are stressing nearly all areas of U.S. business, and commercial real estate is not exempt. This is forcing building owners and operators to invest in measures to protect their assets from things they have not needed to consider previously, such as a rising cost of traditional fossil fuel-based energy sources and increased demand for renewable alternative energy solutions. Video in all forms is now being used for marketing . Some of the practical consequences of what building owners and business owners are facing and need to consider in their business continuity and resiliency planning include: Energy conservation, including reform, sustainability, and renewable energy, has been an ongoing topic in real estate for over 50 years. HVAC and lighting tend to be the largest contributors to energy consumption in office buildings. Before the crisis, the real estate industry had been moving toward digitizing processes and creating digitally enabled services for tenants and users. As a whole, construction views cybersecurity as a lesser business priority: Just 64% say it's a high priority versus 77% of businesses overall, according to the KnowBe4 study. Russia is one of the largest exporters of energy and food commodities, with Russia and Ukraine exporting 30% of the worlds wheat, a key product in the worlds food supply. A companys ability to expand, contract, sublet and terminate early, while rapidly providing more attractive flexible/shared workspaces, may ultimately correlate with its ability to survive, especially as energy, fuel, tax, and labor costs rise. 1. The emerging conflict between state preemptive legislation and local control over land use, and the litigation that has emerged from these conflicts, will create additional regulatory uncertainty for some time to come.. Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions. the threat and risk landscape? If inflation is exacerbated by geopolitical volatility, something that interest rate policy cant manage, then the impact of that volatility becomes more significant. Planners, government staff, and elected officials will face renewed pressure for new and upgraded Infrastructure and increased need for services in more decentralized locations which are often the most expensive and difficult areas to service. When you add in the complexities around supply chain stress, an improving but still unresolved pandemic hangover and energy costs, the lines between these risks become more blurred. Vacant retail stores are being repurposed as last-mile warehouses. With factories, mines, and processing plants shut for extended periods in different parts of the world, firms scrambled to find new suppliers for their operations. Enlarge this image Robert Lee Johnson in his old neighborhood in . Most would assume this is all a COVID-19 side effect, which is only partially true. In the short term, the tradeoff for these health and wellbeing operational improvements is a significant increase in building energy consumption for common areas and tenant spaces, along with a corollary increase in greenhouse gas (GHG) emissions. When an operator may have to keep its amenity spaces closed for months, creating a differentiated experience will necessarily involve a suite of digital-first products and experiences: telehealth, on-demand delivery and concierge services, virtual communities, contactless access for residents, guests, and maintenance staff, and much more. In addition to the real opportunities garnered by these trends, the Real Estate industry is already experiencing an increase in the attack surface from potential new threats and risks. Vaibhav Gujral is a partner in McKinseys New York office, where Aditya Sanghvi is a senior partner, Robert Palter is a senior partner in the Toronto office, and Brian Vickery is an associate partner in the Boston office. For example, while relatively few real estate companies were actively developing or pursuing digital and advanced analytics strategies before the pandemic, such strategies can help with tenant attraction and churn, commercial lease negotiations, asset valuation, and improved tenant experience and operations. The Fed was also intervening in overnight lending markets. Most real estate players have been smart to begin with decisions that protect the safety and health of all employees, tenants, and other end users of space. Cyberattacks have increased and continue to impact global stability as they target critical infrastructure. Now as workers confront the resurgence of COVID moving into the summer of 2022, they appear to be even more reticent to return to work given what they believe are viable remote work alternatives. Meanwhile, many asset owners and operators face drastically reduced operating income, and almost all are nervous about how many tenants will struggle to make their lease payments. But the COVID benefit programs ended long ago around the time that COVID vaccines became widely available, yet the worker shortages have only grown. 1 It's no surprise thatwhen shoppers avoid crowds, universities send students home, and retailers, restaurants, and hotels close their doorsowning a. REFERENCES 11.1 . Higher-quality and newer office buildings would fare the best relative to the rest of the office inventory, and there is significant concern about the viability of adapting older office buildings with larger and deeper floorplates to residential uses and whether there will be enough future demand to backfill these altered spaces. Many of the new regulations are intended to shape land-use patterns and encourage the production of housing in urbanized areas where transit-oriented and other higher-density affordable housing development is encouraged and incentivized through regulation. This is not only power plants and dams but also commercial real estate and all non-single-family use types. However, an unexpected shift, the Great Decentralization, took many by surprise in the wake of this latest global disruption. Some of the practical consequences of what building owners and business owners are facing and need to consider in their business continuity and resiliency planning include rising insurance costs and increased investment in on-site energy resilience.. Apple employees and more recently Google Map subcontractors sent a petition to company leadership to urge a continuation of their ability to work remotely after being ordered into the office. It is possible that demand for senior living assets could dampen, or the product could change altogether to meet new preferences for more physical space and more-intensive operational requirements. INDUSTRY ASSOCIATIONS 11. Continued vigilance is warranted on the part of financial supervisors to mitigate such risks. These pandemic supply shocks have driven inflation well above the Feds stated policy of two percent. The smartest will now also think about how the real estate landscape may be permanently changedin the future, and will alter their strategy. In one specific instance, Russian malware was recently discovered in REIT HVAC systems only one week after the US government warned of the malware by name and country of origin. Employers will need to triage different work functions to specific locations, scheduling office meetings during the middle of the week while pushing phone and computer-based activities towards the shoulders of the week when workers prefer to stay home. Despite widespread economic uncertainty, 2021 represented a record-breaking year for the global real estate realm, with global commercial sales volumes exceeding the 2020 total by 59% and the previous peak observed in 2019 by 22% - far above the expectations voiced in last year's Global Outlook. Two of the largest regulatory bodies governing ESG initiatives and reporting in Europe are the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. In a matter of weeks, the lives of so many have changed in ways they had never imagined. Those that succeed in strengthening their position through this crisis will go beyond just adapting: they will have taken bold actions that deepen relationships with their employees, investors, end users, and other stakeholders. The tenant base will become more diverse, with growth dominated by the Hispanic population as growth in the White segment of the population is highly focused in the 65+ age group. The ten-year break-even inflation rate remains above 200 bps. Residential and commercial tenant eviction moratoriums at the federal, state, and local level, as well as limits on rent increases proliferated throughout the pandemic. Wheat futures rose 40% year-to-date and 57.8% over the last 12 months. In the UK, asset values suffered their fastest ever declines, with one index of commercial real estate compiled by MSCI down . The National Association of Realtors this week released a free report detailing 50 threats, risks and challenges the real estate is facing today and will face in the near future. This includes CWA Section 404 dredge and fill permits issued by the Corps. The implications for property markets are mostly indirect but potentially significant. Within residential real estate, players that have invested in digital sales and leasing processesusing virtual open houses and showings; augmented and virtual reality; and omnichannel, targeted, and personalized saleswill more quickly allow their residents to find the right space for themselves. Other sectors will likely invest in labor-reducing technologies in this expensive labor market including automation, robotics, and lesser but very effective mechanisms including QR code restaurant menus, telemedicine, contactless hotel check-in, and greater use of chatbots to fulfill customer service needs, all of which may increase efficiencies and reduce repetitive and lower-wage work functions.
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