The commercial real estate industry is increasingly focused on the needs of small firms where job growth is outpacing larger firms by nearly five to one, according to Emerging Trends in Real Estate 2016, co-published by PwC US and the Urban Land Institute (ULI).
Now in its 37th year, Emerging Trends in Real Estate provides outlooks for the real estate and land use industry. It includes interviews and survey responses from more than 1,800 leading real estate experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.
“The real estate industry's traditional focus on big cities and large employers is shifting significantly as small businesses emerge as the growth engine for the U.S. economy,” said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. “This is creating disruption in the office sector as it finds ways to create new space models to accommodate these employers.”
10 Trends to Watch
PwC and ULI outline the top trends in real estate for 2016:
1. 18-hour cities 2.0
The real estate industry is confiden in the potential investment returns in these 18-hour markets – or markets where businesses, restaurants, and other services operate virtually around the clock. The growth in investor sentiment is evident in the 2016 top ten rankings. With the exception of San Francisco and Los Angeles, the balance of the markets are 18-hour gateway cities.
2. Next stop: the suburbs
As the cost of living and housing prices have risen in the core gateway markets, it’s apparent that suburban opportunities are gaining investor favor. In the top 40 metro areas, 84% of all jobs are outside the center-city core. That’s cause for optimism for the suburban future.
3. Offices: barometer of change
The office sector benefits from the strengthening employment numbers and a rethinking of how employees can maximize their productivity through open workspaces. Some surveyed respondents see the redesign as a way to alter work style itself, while others view it as a way to attract and keep desired talent.
4. A housing option for everyone
Economic and demographic factors influence the housing market as it deals with providing housing desired by the baby boom generation, aging millennials, a population making an urban/suburban choice, and finding a way to provide affordable housing to support a vibrant workforce. Developing better housing for everyone is passing from “nice to do” to “must do”, and that will shape housing trends.
Driving rates are down and parking is a suboptimal use of land in many cities. Photo: Jeffrey Smith/Creative Commons
5. Parking for change
Miles traveled by car for people 34 years old or younger are down 23 percent (United States Department of Transportation – Federal Highway Administration), while the percentage of high school seniors with driver’s licenses declined from 85 percent to 73 percent between 1996 and 2010, according to the American Automobile Association. The urbanization trend and gen-Y preferences already suggest that existing parking represents a suboptimal use in land and in both 24- and 18-hour cities.
6. Infrastructure: Network it! Brand it!
With urban population growth, cities are looking to prioritize maintenance and tackle critical needs in water supply and distribution, public education, aviation, vehicle and pedestrian traffic, and rail safety. This is leading to creative solutions such as high-frequency bus networks and green infrastructure. Innovative solutions to infrastructure needs is likely to mark the latter half of this decade and beyond.
7. Food is getting bigger and closer
There are many cities where neighborhood land is cheap or older buildings sit idle, and where median incomes are low and the need for fresh food is high. What is trending is the idea that urban land is the most precious and flexible of resources. Just as the reinvention of the suburbs is a story for the decade ahead, so is the creative adaptation of inner-city uses.
8. Consolidation breeds specialization
The evolutionary trends in development, equity investment, and lending are showing that “small can be powerful.” Developers may find it difficult to access sufficient capital unless they have scale, but this means fitting the quality demands of conservative lenders. That requires finding niche lenders and investors willing to fund the smaller projects; and small developers with their lenders may be accessing the most innovative parts of the business. Firms may find themselves in the middle and will need to choose which side – smaller or larger – they wish to be on.
9. We raised the capital; now, what do we do with it?
New capital will be invested in: additional markets (capital is expected to flow more freely in 18-hour cities), alternative assets (what constitutes real estate will continue expanding), old is new again (older space is being embraced and it’s making the market consider a wider range of potential investments), and alternative property types (medical office and senior housing may see a benefit from changing demographics, and data centers and lab space may be in demand due to technical changes).
10. Return of the human touch
The industry is trending toward more intensive active management. Risk management of hacking issues is of critical concern – and attention to cybersecurity will penetrate more deeply into the real estate business. Attention to individual decision-making is needed as much as ever.
5 Markets to Watch
A snapshot of the top five markets ranked by survey respondents and their outlook for each market:
- Dallas/Fort Worth – Impressive employment growth is the story behind this area’s rise to the top of this year’s survey (it ranked #5 last year), which is supported by a business-friendly environment along with an attractive cost of doing business and cost of living.
- Austin – Austin (same spot as last year) fueled by another year of diverse job creation, it remains an attractive place to live for all generations. One concern from surveyed participants is that the market is growing faster than the local infrastructure.
- Charlotte – This city (up from #7 last year) embodies many of the components of the 18-hour city. Good job and population growth along with the development of urban centers makes the market attractive to residents.
- Seattle – Seattle (#8 in 2014), is popular with domestic and global investors, offers a diverse industry base and is benefiting from growth in the technology, advertising, media and information industries.
- Atlanta – The market (which ranked #11 last year) enjoys strong growth in key sectors of the economy without the typical concern of oversupply. The lower cost of doing business is attracting corporate relocations which contribute to market growth.
Related Stories
| Jan 11, 2014
Getting to net-zero energy with brick masonry construction [AIA course]
When targeting net-zero energy performance, AEC professionals are advised to tackle energy demand first. This AIA course covers brick masonry's role in reducing energy consumption in buildings.
| Jan 10, 2014
What the states should do to prevent more school shootings
To tell the truth, I didn’t want to write about the terrible events of December 14, 2012, when 20 children and six adults were gunned down at Sandy Hook Elementary School in Newtown, Conn. I figured other media would provide ample coverage, and anything we did would look cheap or inappropriate. But two things turned me around.
| Jan 10, 2014
Special Report: K-12 school security in the wake of Sandy Hook
BD+C's exclusive five-part report on K-12 school security offers proven design advice, technology recommendations, and thoughtful commentary on how Building Teams can help school districts prevent, or at least mitigate, a Sandy Hook on their turf.
| Jan 10, 2014
Resiliency, material health among top AEC focuses for 2014: Perkins+Will survey
Architectural giant Perkins+Will recently surveyed its staff of 1,500 design pros to forcast hot trends in the AEC field for 2014. The resulting Design + Insights Survey reflects a global perspective.
| Jan 9, 2014
How security in schools applies to other building types
Many of the principles and concepts described in our Special Report on K-12 security also apply to other building types and markets.
| Jan 9, 2014
16 recommendations on security technology to take to your K-12 clients
From facial recognition cameras to IP-based door hardware, here are key technology-related considerations you should discuss with your school district clients.
| Jan 9, 2014
Harley Ellis Devereaux, BFHL Architects announce merger
Effective January 1, 2014, Ralph Lotito and Brett Paloutzian have merged BFHL, comprising 15 healthcare architects, with Harley Ellis Devereaux. A national architecture and engineering firm in practice since 1908, Harley Ellis Devereaux has offices in Chicago, Detroit, Los Angeles, San Diego and San Francisco, CA.
| Jan 9, 2014
Special report: Can design prevent another Sandy Hook?
Our experts say no, but it could save lives. In this report, they offer recommendations on security design you can bring to your K-12 clients to prevent, or at least mitigate, a Sandy Hook on their turf.
| Jan 7, 2014
Concrete solutions: 9 innovations for a construction essential
BD+C editors offer a roundup of new products and case studies that represent the latest breakthroughs in concrete technology.
Smart Buildings | Jan 7, 2014
9 mega redevelopments poised to transform the urban landscape
Slowed by the recession—and often by protracted negotiations—some big redevelopment plans are now moving ahead. Here’s a sampling of nine major mixed-use projects throughout the country.
