Kelley Real Estate Outlook
Spring 2024

Spring 2024

The IU Center for Real Estate Studies and the Indiana Business Research Center are pleased to bring you the Spring 2024 Kelley Real Estate Outlook.

Technology and artificial intelligence are hot topics in the real estate industry today, as industry members seek to capitalize on the shift from “location, location, location” to “data, data, data.” Our featured article by Louis Rothstein of Fundrise will help you navigate PropTech and AI, their impact on what you do every day, and why humans aren’t out of a job yet. Also, don’t forget to keep your eye on our Power Grid of demand drivers, which are updated monthly, and the latest real estate research in this issue, all part of our focus on integrating research and practice to help you stay on top of what is going on in our ever-changing commercial real estate environment.  

– Sara Coers, Associate Director, IU Center for Real Estate Studies
– Doug McCoy, Al and Shary Oak Director of the IU Center for Real Estate Studies

Power Grid: Real Estate Demand Drivers

Sara Coers, Associate Director, IU Center for Real Estate Studies

Updated monthly, our Power Grid dashboard gives a simple and clear picture of how Indiana and the U.S. are performing on key metrics that correlate to real estate demand.

As we are welcomed into spring 2024 with news that the Federal Reserve maintains their projection for three rate cuts this year, the Indiana housing market shows little signs of concern about rates that currently sit at 20-year highs. While home price to income ratios are up nationwide, Indiana continues to outpace the country in reduced affordability. Help is on the way nationally, with building permits up over 9%, bringing much-needed supply to the market. Conversely, Indiana permits are down over 15%, making it unlikely we will see improvements in housing affordability soon. Private employment remains strong at the time of this writing, and Indiana retail sales grew at more than twice the rate of the U.S., indicating optimistic consumers and an expanding local economy. Sunnier days lie ahead, and Indiana housing prices are likely to continue to rise with the temperature outside.

View the Power Grid »

The Latest Research

Sara Coers, Associate Director, IU Center for Real Estate Studies
Isaac Hacamo, Associate Professor of Finance, IU Kelley School of Business

We read a lot of journals and research papers here at the Kelley School and the Center for Real Estate Studies, as you can imagine. We want to share some of the more interesting and compelling studies with you, providing a brief summary and a link. Enjoy!

Priced-out: Rent Control, Wages, and Inequality

by Geraldo Cerqueiro, Isaac Hacamo, and Pedro Raposo
March 9, 2024

The loss of rent control for low-income households can cause significant reductions in income due to the need to relocate further from higher-paying jobs, according to the authors of this paper. Higher-income households do not suffer the same fate after the loss of rent control due to better access to transportation and the ability to afford commuting costs, despite having to relocate to more affordable housing further from higher-wage jobs. While rent control may have a positive impact on the earning potential of low-income households, rent control has potential negative impacts on housing markets. The authors ultimately conclude that improved public transportation may be a superior alternative to rent control.

Read the Abstract

Spatial Implications of Telecommuting

by Matthew J. Delventhal and Andrii Parkhomenko
March 27, 2023

The rise in working from home has caused a shift in where people live and work, with the potential for a long-term reversal of the concentration of talent and money in major employment centers. The authors of this paper model the impact of a permanent shift toward telecommuting for jobs that enable high productivity from home and allow for workers to live further from their office (largely jobs requiring college educations in industries engaged in base economic activities that are less dependent on the local economy). The authors foresee a long-term reduction in demand for offices in city centers, with those with telecommutable jobs gravitating toward outlying locations, allowing those with non-telecommutable jobs more access to housing near employment centers at more affordable prices.

Read the Abstract

To Own or to Rent? The Effects of Transaction Taxes on Housing Markets

by Lu Han, L. Rachel Ngai, and Kevin D. Sheedy
June 2023

Higher transaction taxes have a negative impact on homeowners and allow investors greater entry into a housing market, according to the authors of this paper. The authors studied the implementation of a real estate transfer tax in Toronto, Canada, and found that it increased time on the market and lowered prices, causing a reduction in overall housing sales and an increase in the attractiveness of renting versus buying. The resulting improvement in investment metrics gave investors greater opportunity in the market, reducing homeownership by 10% in the market and causing an increase in buy-to-rent transactions. Most notably, they found the transaction tax created a 113% loss in welfare compared to the extra revenue it raised.

Read the Abstract

Monitoring the Metrics

Navigating Real Estate’s Data Evolution

Louis Rothstein, Lead Product Manager, Real Estate Technology at Fundrise

The landscape of real estate is undergoing a profound transformation, moving from the traditional emphasis on "location, location, location" to a new focus on "data, data, data." This shift signifies a fundamental change in the acquisition, sale, and management of properties, driven by technological advancements. For practitioners in the field, staying ahead of these data-driven trends and being data-fluent is not just beneficial — it's essential for maintaining a competitive edge in an increasingly sophisticated market.

Real Estate Data Literacy

In the rapidly evolving landscape of modern real estate, data literacy has emerged as a critical skill set, empowering professionals to navigate and interpret vast amounts of market and property data. This capability is not just about handling numbers; it's about transforming these numbers into actionable insights that drive strategic decisions and foster success across the sector. Highlighting the significance of data in shaping the future of real estate, Yao Morin, Chief Technology Officer at JLL, asserts, “The future of corporate real estate relies on better data.” Morin points out the complexity of the challenge, noting the vast, unstructured, and complex nature of the data that real estate professionals must contend with. She emphasizes that real estate data requires skilled processing to transform it into a valuable resource, underscoring the necessity for real estate professionals to develop data literacy skills.

computer keyboard, smartphone and keys with data connections superimposed.

The journey toward actionable insights begins with the availability of comprehensive datasets, but it doesn't end there. As noted by McKinsey & Company, the data must be “engineered the right way with the right data governance.” This statement highlights the dual importance of not only possessing the data, but also applying rigorous data management and governance practices. Effective data management is paramount, ensuring the integrity, accessibility, and security of the data infrastructure, which in turn, supports informed decision-making and strategic planning.

Being data literate encompasses a broad spectrum of skills, from reading and understanding data to creating and communicating data-driven insights. This literacy enables professionals to cut through the noise of raw numbers, identifying trends and leveraging information in a way that is strategic and impactful. In an industry increasingly driven by digital innovation and data-centric strategies, the ability to assess and evaluate data in real time is more crucial than ever. Professionals equipped with advanced data literacy skills are not just navigating the current market; they are shaping the future of real estate.

Embracing the Data Revolution

Property technology (PropTech for short), which is also known as Real Estate Technology or CRE Tech, is reshaping how real estate professionals interact with properties. Mirroring the impact of FinTech on the financial services industry, the PropTech revolution is setting new standards in the industry.

Historically considered a laggard in the technology arena, the real estate industry is now rapidly ramping up its tech integration. Reflecting this shift, the global PropTech market, valued at $30.16 billion in 2022, is forecast to expand to an estimated $133.05 billion by 2032.

Innovations Leading the Charge

In 2024 and beyond, AI is expected to advance the technological transformation that PropTech began. Some of these areas include:

  1. Democratizing Real Estate Investment: PropTech platforms are transforming real estate investment by facilitating crowd-sourced funding and fractional ownership. This innovation is lowering the entry barrier for investors with more manageable capital requirements.

  2. Automated Valuation Models (AVMs): AVMs are transforming property valuation by using algorithm-based tools that analyze vast amounts of data to estimate property values quickly and accurately. This technology streamlines the appraisal process, reduces costs, and provides instant, data-driven insights into property worth.

  3. Geospatial Analytics: Leveraging GPS, satellite imagery, and GIS data, geospatial analytics offers insights into land use, valuation, and urban planning. This technology is crucial for site selection, market analysis, and risk management.

    A satellite in space with a view of earth showing the United States with cities lit up.

  4. Virtual and Augmented Reality (VR/AR): These technologies are revolutionizing the way properties are viewed — offering immersive, 360-degree experiences that allow potential buyers to explore properties remotely — catering to the modern demand of iBuying and iRenting.

  5. Smart Building Innovation: AI integrates with building management systems to optimize energy consumption, HVAC performance, and maintenance operations.

  6. Property Management Efficiency: AI enhances property management functions, from tenant vetting to lease optimization and preventive maintenance scheduling. Predictive analytics support dynamic rental pricing and demand forecasting, optimizing revenue for landlords and REITs.

The Imperative for Continuous Learning

As PropTech and AI continue to advance, the imperative for real estate professionals to engage in continuous learning and skill development has never been more critical.

A study by Forrester Consulting, commissioned by Tableau, reveals that more than 80% of decision-makers expect data literacy from employees across all departments.

By embracing these tools and the insights they offer, real estate professionals will not only refine their investment strategies, but also provide more value to their clients, positioning themselves as indispensable advisors in an increasingly complex landscape.

Leading companies like CBRE are exemplifying this shift by fostering a data culture within their organizations. Through partnerships with educational platforms, they are upskilling employees in data literacy and analytics, ensuring that their teams are equipped to navigate the data-driven landscape of modern real estate. CBRE offered personalized learning paths for various departments in skills like data literacy, Excel, Tableau, Power BI, Python, and SQL, supporting the launch and promotion of their data upskilling program. This initiative is just another example highlighting the industry's shift toward data-driven and data-fluent real estate professionals.

The Human Element in a High-Tech Industry

As technology continues to redefine the industry, the critical importance of human insight and expertise is more pronounced than ever. Microsoft CEO Satya Nadella emphasizes the shift toward a more human-centric approach to AI. In this "co-pilot" era, technology is seen as augmenting rather than replacing human capabilities.

Businessman viewing a night or VR globe hologram with digital overlay for virtual reality.

This high-tech/high-touch methodology exemplifies a balance — integrating technological efficiency with the irreplaceable depth of human real estate acumen. In an age where AI and data analytics are increasingly becoming a staple, the role of real estate professionals is not diminishing, but rather undergoing a significant evolution. These advanced tools are designed to enhance human capabilities, enriching decision-making precision and operational efficiency, while still valuing the personal engagement and deep insights that are the foundation of successful real estate practitioners.

The proactive adoption of technology in real estate, as highlighted in JLL's 2023 Global Real Estate Technology Survey, highlights the momentum toward innovation. With over 80% of real estate occupiers, investors, and developers planning to increase their technology budgets in the next three years, the industry is clearly embracing the shift toward a more integrated, technology-enhanced future.

Final Thoughts

As technology reshapes the landscape, the blend of data literacy and human insight emerges as the cornerstone of modern real estate practice. This evolution, driven by the demands of a data-centric market and the opportunities of digital innovation, invites professionals to embrace continuous learning and technological fluency. The future of real estate, thriving on the synergy between advanced tools and real estate acumen, promises a dynamic, efficient, and sustainable path forward. Embracing this dual focus on technology and personal expertise will not only propel the industry into its next chapter but also ensure that real estate professionals remain indispensable navigators of the market's complexities, crafting successful outcomes in an ever-evolving world.

References