Emerging Trends in Real Estate® 2016 reflects the views of more than 1,800 industry experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants. Read the 2016 report for the detailed findings.
1. 18-hour cities 2.0
Last year Emerging Trends identified the rise of the 18-hour city. This year, the real estate industry is expressing growing confidence in the potential for investment in these markets. Potential workers are drawn to these markets due to the availability of services and amenities similar to larger metro areas, but at an affordable cost. Employers are drawn to the quality of the workforce and the lower cost of doing business. The bottom line is that these 18-hour cities are being considered viable investment alternatives to the big six.
2. Next Stop: The suburbs…What is a suburb?
The suburbs are a long way from being dead, but the suburbs that are thriving, are not the suburbs of the past. Investors still like urban investments, but urban areas are a finite universe. The real estate market has found a way to replicate the attractive components of an urban environment in select suburban locations. A growing amount of evidence supports the idea that millennials will eventually make their way to outer neighborhoods and even select suburban locations. While they are leaving the urban center, they are still looking for walkable locations with good public transportation and all of the amenities to which they have become accustomed.
3. Offices: Barometer of change
The office property sector offers a direct insight into how technology disruption, generational transfer, workflow reorganization can impact real estate. Space per worker has been steadily declining, but it hasn’t been just a drive to cut costs. New space design must be attractive to the workers who companies hope to attract. This has resulted in new layouts that cater to the demands of the millennial worker, who are quickly becoming the largest percentage of the workforce. But this new space isn’t just appealing to the workers, it also addresses the way work is being done. Technology is allowing workers to be much more flexible in what they can do and where they can do it. In addition, we are seeing workers who prefer to go from project to project rather than commit to a single employer and firms who prefer to share space with other companies. In the middle of all this change, we are witnessing the beginning of the exit of the baby boomers from the workforce, leaving generation X in charge of the growing millennial workforce.
4. A housing option for everyone
The market has been waiting for the single family housing market to return to an ownership percentage near the 66% long-term historical average. Changing demographics and household preferences are moving in a direction away from traditional homeownership. This is creating opportunities for a wider set of housing options. The single family market continues to improve in a number of markets, but first time buyers have been slower to return to the market. Single family rental continues to develop as a preference for a number of households, who like the lower cost of entry and flexibility. Going forward, the housing market will see demand from aging baby boomers who will be looking for homes where they can age in place. While younger millennials will look for affordable options in higher cost urban areas.
5. Parking for change
For years, the search has been how to provide enough parking. That trend is changing to how do I profitably repurpose the parking I have? Tenants who once required a set number of parking spaces per employee, are reducing their demand as workers expand their use of alternative commuting methods. Mass transit, bicycles, ride sharing, and walking are becoming more popular ways to get to and from work. Another issue is how to provide parking to tenants who have a large number of workers with alternative work arrangements, but who may be in the office at the same time. Building owners will need to find alternative ways to generate revenue from resources currently devoted to parking.
6. Infrastructure: Network it! Brand it!
Infrastructure solutions in the U.S. have traditionally been allocated to large government sponsored projects. With the number of infrastructure needs in markets across the country becoming more numerous and varied the opportunity exists for private investment to become more involved in providing solutions. These solutions are good for the community, and if designed appropriately can be profitable for investors.
7. Food is getting bigger and closer
What is the solution when you have a generation that clearly expresses a desire to eat fresh more nutritious foods but chooses to live in large urban areas? One way to meet this need is with urban farming. Not only does urban farming utilize rooftops, it is also bringing new life to obsolete urban industrial properties.
8. Consolidation breeds specialization
The real estate market continues to experience consolidation as market participants look for greater market share and operating efficiency through acquisition. The market however, has realized that there is still room for those who specialize. This specialization reminds us that real estate is still a hands on investment that benefits from local expertise. Specialization allows developers, owners, service providers, and operators to provide that expertise to a growing variety of real estate investments.
9. We raised the capital, now what do we do with it?
Domestic and global capital continues to flow into the U.S. real estate market. Global uncertainty and financial market volatility continue to enhance the attractiveness of hard assets in relatively stable markets. The big six markets that have been the number one choice of many investors have seen prices reach a level where investors are now seriously considering expanding to a wider market set and alternative investment choices.
10. Return of the human touch
Technology, big data, and increased market transparency has led to the perception that real estate investing can be done using an algorithm. While these tools have made it greatly enhanced the ability of investors to target specific investments and increase confidence in underwriting assumptions, it still takes the human touch and experience to make it work.