Diversity and Inclusion: CRE’s Need for Racial Parity
A recent report from the Brookings Institute has spurred a flurry of features and analysis into the race gap in commercial real estate in the US. The report is called “The Devaluation of Assets in Black Neighborhoods: The Case of Commercial Property”, and it was published in July 2022. It argues that commercial real estate (CRE) value is “highly unequal across households, racial groups, and neighborhoods”.
Some of the highlights – or low points, you might say – of the report include:
- That “retail space is undervalued by 7% in majority-Black neighborhoods”;
- Evidence of a whopping “26% undervaluation for owner-occupied housing”;
- And, in aggregate, “majority-Black neighborhoods have $235 billion in lost wealth from owner-occupied homes and $171 billion in lost wealth from retail space”;
- But office space valuations do “not appear to be affected by the racial composition of neighborhoods once other factors are considered”
There is, naturally, a lot more insight and specifics – as well as methodology information for your scrutiny – in the report itself, but it does present a challenge to those of us in the CRE space: what are we doing to dismantle inequality in our sector?
Writing in an op-ed for Bloomberg, two of the report’s authors point out that the “racial homeownership gap has received considerable attention” in media, but that CRE has a gap of its own that too seldom gets addressed.
“Only 3% of Black households own commercial real estate, compared with 8% of white households, and their holdings are much smaller — valued at just $3,600 on average, compared with nearly $34,000 for white households,” they write.
Measurement is just the first step
This report shows us an important gap in the economics, but also in the academics. As the authors explain: “As far as we know, this is the first research to offer a detailed analysis of how the racial composition of local areas relates to commercial real estate values”.
Of course, we don’t have all the answers to undoing these historic and contemporary imbalances, but we know we must begin that undoing. Measurement is the first step. As business management thinker Peter Drucker said, “you can’t change/measure what you don’t measure”.
[Editor’s note: Forgive that slash in the quote: there is some debate about the exact phrasing.]
There are many voices that have called for changes to policy and to the makeup of our ranks within the sector for years. To a degree, the very same challenge can be laid at our feet in terms of gender inequality too.
Just as tech as a sector has had to grapple with its diversity failures, so must CRE, and – again like tech – it is time to acknowledge that this is both an ethical and economic imperative.