By Robert Steeg
I recently attended the “9th Annual What’s Really Going On & Emerging Trends in Real Estate” conference sponsored by PWC and the Urban Land Institute. PWC annually conducts an extensive survey of business people and academics in the real estate field, and then produces a comprehensive and detailed report on the subject. This year’s report, “Emerging Trends in Real Estate 2018,” is almost 100 pages long, and is packed with statistics and analysis of the real estate capital markets, trends, patterns, and outlooks for both investment and development.
Following are some highlights of the report and a link to the report in case you want to take a deep dive.
Highlights of “Emerging Trends in Real Estate 2018” Report
“The biggest trend is toward flexibility, agility, quality. Real estate facilities are not just ‘overhead,’ but a way to improve not just employee happiness and engagement, but also productivity.”
“More and more people are attracted to buildings that have wellness features. There’s a growing body of research that [such buildings] improve the productivity and satisfaction of your workforce.”
There are now four main age groupings, each with in excess of 60,000,000 members – the Baby Boomers, Generation X, the Millennials, and the latest group, Generation Z. Generation Z is replacing the Millennials in their preference to live and work in the “urban core,” but among Millennials that trend is starting to reverse itself. Millennials are starting families and are moving their residences out of the “urban core” into suburbs that are in close proximity to the urban core.
The freelance sector of the workforce is rapidly growing, contributing to an increasing demand for flexible work space. WeWork is now the 11th-largest tenant in New York City.
Approximately 37% of Baby Boomers have less than $50,000.00 in savings. That is prompting them to stay in the workforce longer than they ever anticipated.
Construction techniques are undergoing rapid technological change. “Off-site factory construction, robotics, 3-D printing, componentization, and a growing number of hybrid construction work flow systems and models blending two or more of these technologically advanced processes are cropping up” in increasing volume, threatening a “breakthrough” in construction techniques.
Retail real estate is not dead. “Despite all the complex changes occurring in retail and retail real estate, it is hard to imagine a world in which brick-and-mortar stores will play anything other than a dominant role in the distribution of a vast majority of retail goods and services.”
However, “it seems to be just a matter of time before remaining full-line department stores exit the market, leaving only super-regional malls anchored by a few elite department stores while erasing hundreds of B- and C-level malls from the U.S. retail landscape.”
The retail sector in particular must adapt to changing social trends. “‘Food, fun and fitness’ are elements of consumption where brick-and-mortar shops compete effectively with e-commerce, where the shopping transaction is more social than a mere exchange of cash for goods. The desire for ‘an experience’ is not restricted to the young.” Developers must be “nimble and culturally embedded with their customer base.”
In the housing sector, particularly good opportunities exist in affordable rental units for Millennials and in housing for seniors.
The top ten markets for both development and investment in 2018 are Seattle, Austin, Salt Lake City, Raleigh/Durham, Dallas/Fort Worth. Fort Lauderdale, Los Angeles, San Jose, Nashville and Boston. New Orleans ranks 67th.
The top property type for both investment and development in 2018 is industrial/distribution. Think: fulfillment centers for e-commerce and warehouses.
After fulfillment and warehouse properties, the next-highest rankings for both investment and development prospects for 2018 are senior housing and moderate-income/workforce apartments.
Demand for both residential and office properties in suburbs close to CBD’s is expected to be high. “Favored suburban locations will be different going forward. In a search for the best of both worlds, transportation lines, walkability, good schools, high-quality real estate, and live/work amenities will be important. … These submarkets [near-in suburbs] provide access to the CBD and have urban amenities, but are not in the main CBD.”
A blurring of the line between living and working space will continue. The theme of “fitness, food and fun” applies to residential, office and retail properties.