Top 10 Issues That Will Impact Real Estate Investments

The global real estate market will reach USD 10,038 billion by 2033, up from USD 6,281 billion in 2023. With a steady annual growth rate of 4.8%, the opportunities are significant but so are the complexities.

Real estate touches every corner of the economy, spanning diverse property types and markets. It’s shaped by everything from demographic shifts to geopolitical changes, technological breakthroughs, and economic cycles. As these forces evolve, they create ripple effects that can drive growth — or introduce new challenges.

For investors, staying ahead means recognizing trends and understanding the issues that will define the next decade.

By identifying these key factors and leveraging actionable insights investors can better navigate complexities, turning challenges into opportunities for sustained growth. 

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Top 10 Most Impactive Real Estate Investments Issues

1. Rising Interest Rates and Inflation

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Rising interest rates and inflation are two sides of the same coin, and both play critical roles in shaping commercial real estate (CRE) investments.

Property owners face escalating interest payments as borrowing costs climb with higher interest rates. This strains cash flow and increases the risk of defaults, making financing more expensive and reducing investment returns. 

Simultaneously, inflation drives up construction costs, labor expenses, and property maintenance, further compressing investors' margins. However, inflation can also benefit CRE by pushing up property values and rents, preserving asset value over time.

While inflation may provide a hedge through asset appreciation, the increased cost of capital means investors must approach acquisitions with greater scrutiny. High-quality, cash-flowing assets in sectors like multifamily, medical, and veterinary real estate — known for their resilience — often fare better in inflationary environments.

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2. Economic Uncertainty 

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Real estate uncertainty shocks refer to unexpected disruptions or fluctuations in the real estate market, which can affect various housing market variables significantly. These shocks typically lead to:

• Declines in rental prices
• A reduction in housing starts
• A slowdown in employment within the construction sector

The impact of such uncertainty is particularly severe during recessions. The magnitude and duration of these effects on housing market variables are far greater than those predicted by a standard linear value at risk (VAR) model.

To mitigate these negative impacts, favorable financial conditions play an important role in softening the effects of real estate uncertainty. When economic conditions are supportive, they help reduce the adverse consequences on both the housing market and broader macroeconomic indicators.

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3. Supply Chain Disruptions and Construction Costs

Construction delays, exacerbated by a labor shortage, impact builders and developers significantly. These delays extend project timelines, limiting the ability to start new projects and generate revenue without potentially increasing costs, which may deter clients. 

The labor shortage, combined with a decrease in construction employment and rising wages, further increases costs for construction firms. As a result, profit margins are squeezed, and firms risk losing clients unwilling to accept higher prices. Supply chain and labor challenges also require earlier project planning, complicating project management and reducing efficiency.

Investors should consider implementing several strategic measures, such as establishing partnerships with experienced contractors and suppliers with demonstrated ability to manage supply chain challenges and minimize delays. Diversifying supply sources is also vital as relying on a single vendor can increase the risk of disruptions. 

It is also wise to incorporate flexibility into project timelines and budgets to accommodate unforeseen delays or increased material costs. Investors should explore alternative building materials or construction methods less vulnerable to supply chain issues. By adopting these proactive strategies, investors can better navigate uncertainties and maintain the financial stability of their projects.

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4. Climate Change and Sustainability

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Climate change and the associated risks of extreme weather events, rising sea levels, and shifting climate patterns increasingly influence real estate investment strategies in the United States. 

Properties in high-risk areas, such as flood zones or regions prone to wildfires, see reduced demand or require costly adaptations to meet new building codes and environmental standards. Sustainability is a key focus, with investors placing higher value on energy-efficient and environmentally friendly properties. 

As climate-related hazards increase, investors must consider the long-term sustainability of their portfolios, with an emphasis on properties that can withstand such events or comply with increasingly stringent environmental regulations.

The U.S. climate change and sustainability framework, shaped by a federalist system, greatly impacted real estate investment. Individual states have considerable autonomy in setting their environmental, social, and governance (ESG) standards, resulting in a fragmented regulatory landscape. 

States like California have set aggressive climate goals, while others, such as Texas, have adopted more lenient regulations. This inconsistency challenges real estate investors, particularly those with national portfolios. They must manage complex state-specific policies and adapt their strategies to ensure compliance and maximize investment returns.

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5. Housing Affordability and Rental Demand

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Housing affordability is becoming a growing challenge as rising costs outpace incomes. With multifamily rents climbing 45% over the past 15 years, more than half of renters now spend over 30% of their income on housing, classifying them as "cost-burdened." This strain is expected to intensify as slowing multifamily construction and increasing demand from younger renters push affordability even further out of reach in 2025.

This shift presents both a challenge and an opportunity for investors. As homeownership becomes less attainable, the demand for rental properties is surging. Expanding multifamily housing meets this rising demand and positions investors for long-term growth. By focusing on rental supply rather than private home construction, investors can help ease the housing crisis while benefiting from the sustained need for affordable, quality rental options.

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6. Demographic Shifts and Urbanization

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As we look to the future, two key demographic groups — the retiring baby boomer generation and millennials — will influence the real estate market significantly through their evolving lifestyle choices. For baby boomers, decisions about aging in place, downsizing, transitioning to senior communities, or assisted living will shape housing demand.

However, a notable trend among millennials is their preference to rent rather than buy homes. Several factors drive this decision, including financial constraints, such as student debt, uncertain job markets, and the high costs of homeownership. Additionally, millennials value flexibility and mobility and often prefer renting in locations that offer convenience and proximity to amenities like walkable urban environments, public transportation, and entertainment options. 

As these trends unfold, the real estate and service sectors are adapting, particularly in areas like multifamily properties, medical facilities, retail, office spaces, entertainment venues, and infrastructure. Ultimately, these demographic shifts will continue to influence housing demands and key decisions across all real estate sectors for years to come.

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7. Technological Advancements in Real Estate

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The global property technology (proptech) market is rapidly transforming real estate by integrating cutting-edge technologies like the Internet of Things (IoT), artificial intelligence (AI), machine learning, and virtual reality (VR). Valued at over $25 billion in 2021, the market is on track to grow by nearly 16% annually through 2030. This surge in innovation presents exciting opportunities for investors — enhancing data management, streamlining operations, and unlocking deeper insights into tenant needs and marketing strategies.

However, keeping pace with these advancements isn’t without its challenges. Adopting new technologies requires significant investment and the ability to adapt to evolving tools and platforms. As demand for advanced property and asset management software rises, staying ahead of the curve becomes essential for long-term success.

The key for investors is striking the right balance — leveraging technology to drive efficiency and growth while managing the complexities of integration. By prioritizing investments in IoT, AI, and other proptech solutions, investors can strengthen their portfolios, improve tenant experiences, and secure a competitive edge in a rapidly evolving market.

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8. Regulatory Changes and Tax Policies

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The top individual tax bracket is currently set at 37%, but it is scheduled to revert to 39.6% in 2026, returning to its pre-Tax Cuts and Jobs Act (TCJA) rate. Many real estate investments are structured as pass-through entities, meaning income flows directly to the individual’s tax return and is subject to personal income tax rates.

For real estate investors with significant personal income, this increase in the tax rate could substantially raise their overall tax liability, affecting the after-tax profitability of their investments, especially when combined with other tax changes.

To mitigate this impact, investors may consider accelerating income into 2025 by diversifying their investment portfolio. In the final year, the 37% tax rate will apply. Alternatively, they can explore real estate tax deferral strategies to reduce taxable income and minimize the effect of the upcoming tax increase.

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Related article: Tax Strategies for Commercial Real Estate Investors

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9. Global Political Instability

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Political instability, marked by disruptions in a country's political landscape, can negatively impact the real estate market substantially. It leads to diminished investor confidence as concerns about security, property damage, and safety risks make investors hesitant to commit capital. Development projects often face delays due to changes in government or administration, which slow bureaucratic processes. 

Property prices may fluctuate, typically declining during uncertain periods and rising once stability is restored. Foreign investment tends to decrease due to policy shifts and risks of civil unrest while the likelihood of property damage or looting increases, especially in urban areas. Financial institutions may also tighten lending standards or raise interest rates, complicating access to financing. 

Real estate investors and developers should consider diversifying their investments or exploring alternative financing options, staying informed about political developments, targeting more stable markets, and ensuring long-term project resilience.

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10. Work-From-Home and Remote Work Trends

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The shift to remote work, accelerated by the pandemic, continues to reshape the U.S. real estate market, bringing investors challenges and new opportunities. As many companies adopt hybrid or fully remote models, demand for traditional office space has declined in specific markets, increasing vacancy rates and putting pressure on commercial real estate returns.

At the same time, residential markets in suburban and less densely populated areas are thriving as remote workers seek more significant, more affordable living spaces. This trend is driving growth outside of major urban hubs, presenting new avenues for investment.

However, it’s important to remember that not every industry can operate remotely. Healthcare, manufacturing, and retail sectors still rely heavily on physical spaces for daily operations, patient care, production, and customer interaction. These industries continue to drive demand for specialized office and commercial spaces, ensuring that key market segments remain stable and profitable.

Repurposing office buildings into mixed-use spaces, coworking hubs, or residential units can unlock new value and meet the market's changing needs. By staying flexible and responsive to these shifts, investors can position themselves for long-term growth in an increasingly dynamic real estate environment.

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Seize Opportunity, Invest With Confidence

Navigating challenges successfully in the constantly progressing real estate market requires experience and a strategic, well-informed approach. The impact of key factors, such as market trends, economic shifts, and evolving property demands, is undeniable, and understanding these aspects is crucial for success.

At Alliance CGC, we understand the significance of these factors and are committed to providing expert strategies to manage the challenges that come ahead. By diversifying your portfolio to recession-resilient portfolios such as industrial properties, medical office buildings, and essential retail spaces, we help ensure long-term stability and growth. These sectors have demonstrated strong performance even in uncertain economic conditions, providing consistent cash flow and potential for capital appreciation.

We offer a strategic partnership to maximize success in today’s real estate market. Now is the time to invest and build a resilient portfolio in a market projected for substantial growth in the next decade. Connect with Alliance, and let’s make a great deal!

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