Source: Yahoo! Entertainment —
The Zacks Real Estate Operations industry constituents’ performances are likely to be affected by rising interest rates, inflationary pressure, macroeconomic challenges and geopolitical issues. There is an increase in underwriting requirements in the debt markets. The combination of less available and more expensive debt is affecting transaction activities. Higher interest rates are making clients adopt a cautious approach too. As a result, investors’ desire for a greater price discovery is causing a delay in the closing timeline for transactions.
Nevertheless, the rising tendency of outsourcing real estate needs by companies and the acceleration of certain trends amid the pandemic are creating scope for these industry participants to grow, while technological investments are creating a competitive edge. CBRE Group Inc. CBRE, FirstService Corporation FSV and Colliers International Group Inc. CIGI are likely to benefit from these favorable trends.
About the Industry
The Zacks Real Estate Operations industry comprises companies that provide leasing, property management, investment management, valuation, development services, facilities management, project management, transaction and consulting services, among others. However, real estate investment trusts or REITs are excluded from this group. Economic trends and government policies impact the real estate market, both global and regional, which, in turn, determine this industry’s performance. Economic activity, employment growth, office-based employment, interest-rate levels, cost and availability of credit, tax and regulatory policies, as well as the geopolitical environment are the major factors shaping the real estate market’s fate. Also, pandemic-induced public health challenges and geopolitical issues have impacted property sales and the leasing lines of business.
What’s Shaping the Real Estate – Operations Industry’s Future?
Interest Rates, Inflation and Geopolitical Issues Affecting Business: The industry’s performance is likely to continue to bear the brunt of rising interest rates, inflationary pressure, macroeconomic uncertainty and a choppy geopolitical environment. Russia’s invasion of Ukraine and the ongoing military conflict have escalated supply-chain disruptions and led to higher inflation and other macroeconomic challenges worldwide. With central banks around the world opting for interest rate hikes to tame inflation, there is a reduction in credit availability. This combination of less available and more expensive debt is affecting transaction activities. Debt markets are taking a cautious stance, but underwriting requirements have also increased. Higher interest rates are making clients adopt a cautious approach too. As a result, investors’ desire for greater price discovery is causing a delay in the closing timeline for transactions. These are leading to significant sales and leasing weakness and affecting this industry’s revenues in the near term.
Covid-19 Continues to Impact Operations: The pandemic has led to structural changes to the utilization of many types of commercial real estate. The return-to-office strategies of companies have been slow to gain momentum. Amid this, occupier confidence with respect to office leasing decisions for the long term is yet to return to the pre-pandemic levels. Also, business travel and face-to-face business dealings are yet to gain pace. The operating challenges are expected to continue in the upcoming period. Particularly, the cautious attitude of clients is likely to keep causing delays in real estate decisions in the days to come.
Outsourcing of real estate needs to gather more steam: Occupiers of real estate, such as corporations, public sector entities and healthcare providers, along with financial services, industrial, life sciences, and technology clients and others, have been increasingly opting for the outsourcing of real estate needs. They depend on the expertise of third-party real estate specialists for execution and efficiency improvements. The major real estate sectors, particularly healthcare and technology, are those in which a change in the use of real estate is leading to a surge in demand for outsourcing services. This is opening up prospects for the constituents of the real estate operations industry. The large players are capitalizing on this trend, with both existing as well as new client wins and expansions. Also, for this industry’s constituent companies, investments in technology will remain the major focus as it helps in driving efficiency, delivering differentiated client services and helping in market-share gains.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Real Estate Operations industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #203, which places it at the bottom 19% of more than 250 Zacks industries.