RealEstateNews 11.25.24
- Wellness Trend Reshaping Markets
- Trump Mixed Bag for Real Estate
- Banks Face Real Estate Risk
Wellness Trend Reshaping Markets
McKinsey reports that in the United States alone, the wellness market has reached an estimated $480 billion. 82% of US consumers now consider wellness a top or important priority in their everyday lives, with Gen Z and Millennial consumers purchasing more wellness products and services than older generations. Real estate wellness refers to spaces that were thoughtfully designed to support the health of their residents, tenants, and customers. According to GWI, real estate wellness is one of 11 sectors that make up the wellness economy, and will grow by 15.8% annually from 2023 to 2028, when it will reach an expected $912.6 billion.
Highly amenitized Class-A office buildings that tap into the pursuit of wellness are finding success. Across the CRE landscape, there is a growing consideration for indoor air quality, open-concept design that encourages social interaction, smart lighting, meditation zones, ergonomic workspaces, and more. This evolution is not contained to one sector, either; rather, it’s unfolding across office, residential, retail, hospitality, and senior living developments.
We are seeing prominent wellness themes infused into the design of many of the new mixed-use development projects. These developments often include open-air design with no shortage of natural light and access to nature, food halls with an expansive selection of healthy food options, boutique fitness studios, luxurious self-care services, the opportunity for ‘pop-up’ storefronts occupied by popular health brands, and spa-like amenities catering to young professionals determined to achieve the perfect work-life balance. Source: Altus Group
Trump Election Impact
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PERE Survey found institutional investors expect the new Trump administration to be a more positive outcome for real estate in terms of more favorable tax policies from capital gains treatment to vehicles like 1031 exchanges. Investors also expect to see less regulation than can be a positive for the economy.
Possible Trump deportation and immigration policies could be a negative particularly for construction and multifamily property demand. On tariff policies there are worries about resulting higher inflation and interest rates. Conversely, expectations on tariff policies may already be driving a stronger US dollar that is a positive for foreign investor inflows into US real estate. Source: PERE News
Banks Face Real Estate Risk
The U.S. banking system remains broadly stable, but a troubling spike in office loan defaults signals deepening stress in commercial real estate, according to the Federal Reserve’s latest supervision report. At large banks, the delinquency rate for office loans has surged to 11% – marking a concerning deterioration in what was historically considered stable commercial lending. The trend is particularly worrying because it comes despite overall banking sector strength.
While large banks have so far borne the brunt of office loan deterioration, warning signs are emerging for smaller institutions. Regional and community banks, which typically hold a higher proportion of their assets in commercial real estate loans, saw increased delinquency rates in the first half of 2024. This could pose a particular challenge as these smaller institutions have less diversified portfolios to offset potential losses. The commercial real estate concerns extend beyond just office space. The multifamily segment has also “come under some stress,” the Fed reports, citing slowing revenue growth, rising operating costs, and declining valuations for certain properties.
In response to these mounting risks, banks have been building their defenses. Institutions are actively adding to their credit loss reserves to protect against potential loan defaults, particularly in commercial real estate and consumer lending sectors. The broader context makes these real estate troubles more striking. The banking system’s overall liquidity has stabilized since the turmoil of 2023. Funding risks have generally moderated, with uninsured deposits – a key vulnerability last year – declining to levels last seen in 2019. Bank earnings have rebounded, and capital levels continue to rise. But the persistent and worsening stress in commercial real estate suggests structural rather than cyclical challenges. Source: The Global Treasurer