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Real estate industry

Real Estate Industry Outlook for 1996: Experts Predict Increased Activity and Changes in the Market

Strategic Insights

— 2 min read

The year 1995 was significant for the real estate industry, with industry expert Stan Ross of E&Y Kenneth Leventhal noting that it laid the groundwork for a major year in 1996. Ross highlighted key changes in the industry that occurred in 1995 and contrasted them with those expected to happen in 1996. The industry is expected to experience significant legislative changes, regulatory requirements, and shifts in buyer demographics.

Key Takeaways:

  • Legislative changes in 1996 are expected to impact real estate-related legislation, including the flat tax, capital gains, and interest deductibility, which will affect housing affordability.
  • The FASB 121 regulation, effective December 15, 1995, requires public corporations to disclose environmentally-impacted real estate assets and recognize contingent costs on their income statement and balance sheet.
  • First-time homebuyers, particularly ethnic minorities, are expected to drive the primary homebuyer market in 1996, despite economic concerns.
  • Corporate America's space usage strategies will continue to evolve, with a focus on cost-efficient office use and hoteling.
  • The value of real estate investment trusts (REITs) is expected to rise as investors realize they are undervalued, leading to an increase in REIT leveraged buy-outs, mergers, and acquisitions.
  • Japan's economic restructuring, including the formation of a Japanese-styled RTC and a major disposition of U.S. investments, will be significant issues in 1996.
  • Mexico's economy is stabilizing, and U.S. developers are re-entering the Mexican market.
  • The real estate industry will experience a technology boom in 1996, with at least one real estate technology-oriented IPO, commercial real estate deals over the Internet, and increasing database creation and information exchange.
  • Base reuse will become a prominent area of focus, with job creation and economic development projects on former military bases.
  • Retailing will continue to redesign and reengineer itself, with a focus on sophisticated analysis and reanalysis of options.
  • The hotel sector will experience a slowdown in the upper end, but continue activity in the limited-stay and extended-stay bargain hotels.

Statistics:

  • Interest rates are at their lowest in 30 years, with teaser rates as low as 4%.
  • The value of real estate companies dropped significantly in 1995, with some companies being worth as low as 50% of their underlying real estate holdings.
  • There are over 2,100 real estate industry specialists in the E&Y Kenneth Leventhal Real Estate Group, located in 75 markets.
  • Ernst & Young LLP has 21,000 people in 93 U.S. locations, and the Ernst & Young organization has over 67,000 people in 600 cities worldwide.

Sources:

  • Business Wire, "1995 was an important year for the real estate industry" (December 26, 1995)
  • E&Y Kenneth Leventhal Real Estate Group, letter to key real estate industry journalists (date not specified)
  • Gallen Associates, contact information (December 1995)

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