States and CRE Owners Brace for the FEMA Funding Cliff

• FEMA fatale: The Federal government is attempting to decrease the size of the FEMA, exposing more real estate owners to risk of loss from natural disasters.

• Bye bye, hybrid: For the first time since the pandemic the majority of Fortune 100 no longer have a hybrid work model.

• Price drop: CRE prices continue to slide as rate hikes ripple through the market and investor confidence wavers.

• Upcoming webinar: Mixed-use projects promise vibrant, walkable neighborhoods—but what does it really take to make them work? Sign up

Editor’s Pick

The FEMA Funding Cliff is a Looming Crisis for States and CRE Owners

Gen Z and younger millennials are now quietly disrupting conventional real estate trends—no longer chasing McMansions on cul-de-sacs but seeking neighborhoods with walkability, personality, and everyday connection. Surveys from the National Association of Realtors show that about 90% of Gen Z and millennial buyers are willing to pay more to live in walkable communities with nearby shops, restaurants, parks, and transit, and many say they’d pay significantly more. Developers are responding by designing master‑planned communities that mix homes with retail, dining, coworking, parks, and wellness spaces to foster vibrant, lived-in experiences rather than mere housing blocks.

But good design alone doesn’t create community—it takes active engagement. Forward-thinking developers are hiring community engagement teams to organize events, support resident-led initiatives, and build social infrastructure from the ground up. Real-life examples include a Gen Z resident launching a fiber arts club and another building a community Instagram page—demonstrating how connection blossoms when residents are empowered to lead, not just live.

A standout example is Mueller in Austin, Texas—a former municipal airport transformed into a walkable, mixed-use neighborhood with bike lanes, parks, shops, healthcare, and cultural programming. Designed to blend homes, amenities, and public spaces in a pedestrian-friendly layout, Mueller has become a model for how lifestyle-oriented communities attract and retain residents while sustaining long-term demand. For the next generation, buying a house is no longer just about square footage—it’s about choosing a community where they feel connected, engaged, and genuinely at home.

Overheard

The Majority Of Fortune 100 Companies Now Mandate Full-Time Office Return

For the first time since the pandemic redefined work habits, a majority of Fortune 100 companies now require full-time office attendance, according to a new report by JLL. Hybrid models, once embraced by 78% of top firms, have plummeted to just 41%. Meanwhile, 54% now mandate full in-person work, a significant increase from just 5% two years ago.

This shift is reshaping the commercial real estate landscape. Office occupancy climbed 1.3% year-over-year in April and May, and the demand for high-end office space is surging. JLL reports that trophy buildings in markets like Miami, NYC, and San Francisco are achieving record-breaking rents, with newly constructed office space averaging $92.38 per square foot.

Vacancy rates remain high, though, over 22% nationally, prompting a wave of conversions and demolitions that shrank the U.S. office inventory by 700,000 square feet last quarter.

The shift back to in-office work is being led by corporate giants such as Amazon, JPMorgan Chase, and Starbucks, all of which are dialing back flexibility and even offering cash exit packages to remote workers who are unwilling to relocate. The message from the top is clear: hybrid work is no longer the default, and the return-to-the-office wars may finally be over.

Essential Metrics

CRE Prices Continue to Feel the Drag of High Interest Rates

Commercial real estate prices in the U.S. continue to slide, though the rate of decline may be easing. According to the latest lagging data from the Commercial Real Estate Prices Index (COMREPUSQ159N), prices dropped 10.5% year-over-year in Q3 2024. That’s an improvement from the record 13.4% decline in Q2 but still marks one of the steepest annual drops since 2010.

The downturn began in late 2022 after years of strong growth, peaking in 2021. Price growth slowed through 2022 before turning negative in Q4, and the sector has now posted five consecutive quarters of year-over-year declines.

The market correction reflects the cumulative impact of higher interest rates, which have pushed up borrowing costs and weighed heavily on deal activity. Loan performance has also begun to weaken, with commercial real estate loan delinquencies rising modestly—from 0.95% in Q3 2023 to 1.05% in Q3 2024—signaling growing stress in parts of the market.

Another potential headwind on the horizon is growing uncertainty around new tariffs and their broader economic implications. While these trade policies are unlikely to have influenced the most recent pricing data—due to the lag in CRE transaction reporting—they may begin to weigh on investor sentiment and deal activity in future quarters. If economic confidence weakens further, the path to price stabilization could be delayed.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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