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What’s new in the world of Real Estate

A survey of 1,000 real estate experts listed their top 10 issues to watch for in 2024. The top three are political unrest, hybrid work and the housing shortage.

There were a pair of multi-billion dollar REIT mergers. Realty Income acquired Spirit Realty Capital for $9.3 billion and Healthpeak Properties merged with Physicians Realty Trust in a $21 billion deal.

CBRE reported a 56% drop in profits. The world's largest commercial property brokerage doesn’t expect earnings to recover until 2025.

U.S. vacation home sales have plummeted. An inventory shortage has seen a 75% decline in sales since 2020.

Plus: The rise of Spirit Halloween and the race to create the “Amazon of Real Estate”.

Listing of the week: A heavily-discounted office building in San Francisco.

Market Updates

Political unrest and global economic health ranks as the #1 issue facing real estate, according to experts. A report from the Counselors of Real Estate that surveyed 1,000 real estate advisors listed the top ten issues affecting the market globally as we approach 2024. The rise of hybrid work and its effect on office properties ranked second, and the U.S. housing shortage ranked third. Other hot-button issues to watch are the rise of A.I., aging physical infrastructure, labor shortages and of course, inflation and interest rates.

Two major REIT mergers happened on Monday. In the first, Realty Income, a single-tenant commercial REIT, acquired the similar Spirit Realty Capital in an all-stock transaction of approximately $9.3 billion, becoming the 4th largest REIT in the S&P 500. The press release touted enhanced portfolio diversification, and corporate synergies leading to a 2.5% boost in value. The second transaction saw two healthcare REITs, Healthpeak Properties and Physicians Realty Trust, merge to create a $21 billion company. They also project substantial cost savings of up to $100 million over the next two years. In a struggling market, consolidations like these become more attractive as a way to increase efficiency and reduce costs.

The largest commercial real estate brokerage is cutting costs as its profits fell. CBRE Group reported a 56% decline in profits in the third quarter and does not expect a recovery until at least the second half of 2024, and a full recovery until 2025. They are planning to cut $150 million in costs as the slowdown in sales, financing activity and difficulty leasing properties have all affected their bottom line. As long as interest rates and the cost of capital remain high, market conditions are unlikely to improve.

Second home sales in the U.S. have dropped by 75% in the past three years. According to research by mortgage services firm Optimal Blue, the market correction is due in large part to an inventory shortage, as demand still remains high. This is because those in the market for vacation homes tend to be wealthier and less sensitive to interest rate fluctuations. Popular destinations such as Hilton Head, S.C. (-83%) and Lake Havasu, AZ (-87%), saw the biggest drops in sales volume. There are indications that vacation rentals are starting to bring in less revenue, which could lead to more supply on the market.