Shifting Focus to the Decade Ahead
“We’ve always done it this way’ doesn’t cut it in real estate anymore. We need to find the best way to do it.”
“The last 18 months roughly has been one of the more static periods I’ve seen in my career. I don’t mean static in a bad sense. I only mean the sense that whatever I would have said 18 months ago is not much different than I would have said this week,” says a veteran real estate pro whose real estate career extends back to the Ronald Reagan years. In fact, many of our interviewees and focus groups noted the “on track” character of recent activity in the property development and investment field.
This does not mean that they are in “Groundhog Day” mode. No one claims we are in a time warp. Most of the experts in the real estate business are following through on business plans that have served them well over the past year and look like a solid roadmap for the future.
That is exactly what “trends” should produce—confidence that a business should not try to start from scratch every year. If you have thoughtfully assessed your resources, been careful about your objectives, and lined up the physical, financial, and human assets needed for success—well, your approach should have some staying power.
Trends—by their nature—are dynamic. Time is a stream, not a frozen pond. That stream runs toward the future, and each year puts some conditions into the past, and brings some conditions closer to realization. If the pace is gradual, we may hardly feel the changes. But they are happening even if subtly. That is one reason that an annual examination of Emerging Trends is such a healthy and helpful exercise. It is when change is so subtle that it may escape notice that that we need to pay even more careful attention.
Trends, by the way, are just one form of change. Our discussion of trends keeps in mind that the world, the economy, and the real estate business are subject to other kinds of influence in the river of time.
Cycles are perhaps the most prominent feature of the real estate industry, and we discuss late-cycle behaviors in this chapter. Trends typically persist longer than cycles. We examine the potential impact of the decades-long deceleration of the U.S. economy on real estate as we emerge from the next recession: slower demand over the decade of the 2020s.
Maturation is another form of change, generational aging as well as the aging of our infrastructure. Will future cohorts continue patterns of previous generations? Boomers have frustrated predictions since they burst upon the scene, and advances in life sciences may permit them to do so again in their 70s and 80s. Our infrastructure, meanwhile, could use rejuvenation and may be seeing an infusion of capital at the state and local levels even as entropy rules in Washington.
Technology continues to present disruption—another form of change—as both a risk and an opportunity. We should not rule out the capacity of capital markets to be a disrupter either. The abundance of capital for debt and equity is a feature of markets for now. But capital markets are notoriously fickle and real estate veterans are well aware of how quickly a “Niagara of capital” can be dammed up.
Physicists recognize “change of state” as another time-based phenomenon affecting real estate. The shift from a blue-collar economy to a white-collar economy profoundly adjusted property needs, as did the dramatic increase in female labor force participation. Today, we are experiencing changes of state in the housing market, which may see homeownership in the 2020s drop to levels not seen since the 1930s and 1940s. We are already seeing such qualitative shifts as the rise of “hipsturbias” in our metro areas. A change in ethos also is observable. The environmental, social, and governance (ESG) movement has taken root in the corporate and institutional investment world. Real estate operations, meanwhile, are more and more attuned to a preference for “community” in the places where we live, work, and play.
Our level of awareness concerning the complex nature of change is increasing, but probably not to the degree that it should be. But, as Holmes often noted to Watson, “The game is afoot.”