The real estate industry is being profoundly impacted by the sentiment that less than half of workers actually go to an office on any given day, particularly in major markets. This has led some of the major technology firms and investment banks, for example, to issue ultimatums to return to the office. As a result, vacancy rates continue to rise slowly, unlike all other major real estate sectors. Many tenants have even started subleasing their offices until their leases expire. The commercial real estate sector is highly motivated to act in the face of the enormous potential impact of uncontrolled climate change.
Pressure is also intensifying for property owners and investors to better disclose their environmental, social and governance (ESG) investments. Rising interest rates are reducing potential rates of return, making acquisition and construction debt more expensive, just when operating revenues seem destined to fall as the economy weakens. This dynamic of lower revenues and higher costs is ruining offers, as shoppers seek price cuts or withdraw. Meanwhile, the same increases in interest rates that reduce leveraged returns also make bonds linked to real estate and other interest-bearing investments more attractive. We expect the availability of capital to decline in the short term, although the denominator effect may not force sales as much as in typical recessions.
For example, because many institutional investors have been undervalued in commercial real estate, they won't need to rebalance themselves by selling real estate assets. Overall, the fundamental question for many investors is how long the Federal Reserve will continue to raise rates. Many investors and developers are willing to look beyond short-term turbulence to focus on long-term opportunities. As a result, there are few examples of motivated sellers in the market. While population growth slowed dramatically during the pandemic, the demand for rental housing is increasing due to the many young adults eager to form their own homes after returning to live with their parents during COVID.
The growing number of young adults choosing to live alone is further driving demand, perhaps as a reaction to the claustrophobia of confinement. The metaverse could also affect how we interact with physical locations. Metaverse properties, like any other type of real estate, can be bought, sold, bought and leased. This could open up real estate investment to a new group of investors, as buying virtual properties is much less expensive than buying physical properties. Quality of life and affordability play an important role in where people choose to live, and many of the markets that received relatively lower scores this year have inadequate infrastructure for the size and growth of their population. Get timely data, trends and feedback from the authoritative source that has been trusted for decades.
Stay up-to-date in today's real estate industry. Analysis to keep real estate auditing committees and executive teams informed about the latest industry trends. If you need to check this shipment again in the future, please use the REFID reference number. Please correct errors and resubmit your information. Director of Real Estate Research at PwC US.
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