Panel
Real Estate Outlook: A More Attractive Asset?
Milken InstituteErik Schatzker, Neil Bluhm, Robert Morse, Eyal Ofer, David Simon, Sam Zell, Bob Morris
- Over the next 24 months, experts predict a surge in new construction driven by the lack of building activity between 2009 and 2015, though a slowdown is forecasted in three to four years as higher interest rates and inflation render returns on new construction costs unviable.
- Asset values and yields are viewed as unsustainable and having moved past peak levels, with potential adjustments driven by rising interest rates, inflation, and a reduction in the velocity of money or federal tapering.
- While public REITs are considered to be on the value end of the spectrum and public prices have already adjusted for a late-cycle environment, private prices are expected to decline as cap rates rise and low cap rates are not sustainable in perpetuity.
- Specific asset classes face distinct risks: the apartment market faces a potential "tsunami of supply" in downtown areas; office rents are predicted to decline annually with rising tenant improvement concessions and a hollowing out of central business districts; and high street retail rents in New York City may need to halve to find a floor, driven by excess supply and e-commerce obsolescence.
- Opportunities exist in multifamily housing, particularly outside Class B segments where new supply is limited, and in seniors housing and manufactured housing which benefit from strong fundamentals and modular construction technologies.
- Demographic and economic shifts, including a projected 42% rise in the freelance workforce over five to ten years and the potential privatization of public assets, are expected to drive specific niche investments.
- Long-term structural changes include self-driving vehicles reducing parking requirements to create shadow office supply or enable new multi-family locations, and a potential hollowing out of central business districts as transportation needs decrease, though opposing views suggest downtowns could benefit from improved access.
- Technological disruptions such as the "Parking Hero" app and shrinking space-per-worker requirements (down to 100 square feet from 200) are altering cash flows and occupancy metrics, while reduced subway usage (down 5% to 8%) may limit future public transit infrastructure investment.
- Inflation and higher interest rates are expected to generate higher rent labels, though this may be counterbalanced by oversupply, while global markets like Hong Kong are described as having prices detached from market conditions due to flight capital.