Dana Wagner is the CHMM and National Manager of Environmental Due Diligence Services at Terracon
Editor’s Note: This guest post is an excerpt from the LightBox CRE Expert Predictions for 2024.
I expect to see the market begin to pick up in Q1 or Q2 of 2024, which is in line with my sentiment from midyear 2023.
We started 2022 really strong and were on a record pace for environmental due diligence activity until midway through Q3, which is understandable given the 50% drop in commercial mortgage activity, but I do see signs of improvement. Like many others, we saw a slowdown after that. The last year has produced many challenges, but companies such as ours that have a large and diversified market presence are better positioned for a softer landing. When you look at year-over-year comparisons, at present most of our practice areas see revenue growth despite all the challenges. We work with a lot of the major lenders and there’s been some improvement in activity—nothing to write home about, but better than earlier in 2023. We are seeing investor clients positioning themselves for more activity in 2024. Some of it is opportunistic and some of it is alternative financing.
- Multifamily will remain favorable in 2024. The housing stock is still under pressure as people remain in their homes due to higher interest rates and more expensive construction materials and labor costs. That said, single family housing starts have been recovering, but significant overall movement on single family housing availability will only occur when interest rates drop, which is now being forecast for 2024.
- We are bullish on industrial and digital services. There is going to be a reconciliation on the office side. Earlier in this cycle, people were expecting office to work itself out and that people would be back in the office in a bigger way. This isn’t going to happen. I think there will be opportunities in the repurposing side with office, but it depends on where, what the plan is and whether the cost structure works.
- For the environmental business, there is a geographic aspect to what we expect to see. I still think the Sun Belt will be pretty good, but there are some spots that are brighter than others. Dallas/Fort Worth, Houston, Nashville, Phoenix and Atlanta should be strong. There are also above the “Belt” bright spots including Boston and Seattle.
We view climate risk as one of the biggest growth areas for our business, with a subset of companies that are asking for it specifically. From the investment and lending communities, they are moving in that direction, but I feel many are waiting for the shoe to drop when it becomes a regulatory requirement.
My prediction is AI is going to have an outsized role in the business by the end of 2024. I do feel that this idea of alternative delivery of information is something whose time is here and is going to get more and more important with clients requiring near real-time input on their decision-making. AI is hugely important in how we can apply it in the service of their customers. Those companies that have a robust data management structure are the ones who will be able to respond and differentiate more quickly.
There are some cautionary elements to AI. For instance, I don’t think it replaces good counsel at this point. It can be a persona in the room but not the thing that is really driving conversation on what should be done. At least in the near term, there will absolutely be a need for people to check this and understand it. I do think it’s important to have the ability to vet the response. You really have to be really careful, but I think you’d be foolish to relegate it to…”it’s coming.” It’s already here. We just have to be able to manage it.