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
| Nov 10, 2010
$700 million plan to restore the National Mall
The National Mall—known as America’s front yard—is being targeted for a massive rehab and restoration that could cost as much as $700 million (it’s estimated that the Mall has $400 million in deferred maintenance alone). A few of the proposed projects: refurbishing the Grant Memorial, replacing the Capitol Reflecting Pool with a smaller pool or fountain, reconstructing the Constitution Gardens lake and constructing a multipurpose visitor center, and replacing the Sylvan Theater near the Washington Monument with a new multipurpose facility.
| Nov 9, 2010
Just how green is that college campus?
The College Sustainability Report Card 2011 evaluated colleges and universities in the U.S. and Canada with the 300 largest endowments—plus 22 others that asked to be included in the GreenReportCard.org study—on nine categories, including climate change, energy use, green building, and investment priorities. More than half (56%) earned a B or better, but 6% got a D. Can you guess which is the greenest of these: UC San Diego, Dickinson College, University of Calgary, and Dartmouth? Hint: The Red Devil has turned green.
| Nov 9, 2010
12 incredible objects being made with 3D printers today
BD+C has reported on how 3D printers are attracting the attention of AEC firms. Now you can see how other creative types are utilizing this fascinating printing technology. Among the printed items: King Tut’s remains, designer shoes, and the world’s smallest Rubik’s Cube.
| Nov 9, 2010
U.S. Army steps up requirements for greening building
Cool roofs, solar water heating, and advanced metering are among energy-efficiency elements that will have to be used in new permanent Army buildings in the U.S. and abroad starting in FY 2013. Designs for new construction and major renovations will incorporate sustainable design and development principles contained in ASHRAE 189.1.
| Nov 9, 2010
Designing a library? Don’t focus on books
How do you design a library when print books are no longer its core business? Turn them into massive study halls. That’s what designers did at the University of Amsterdam, where they transformed the existing 27,000-sf library into a study center—without any visible books. About 2,000 students visit the facility daily and encounter workspaces instead of stacks.
| Nov 9, 2010
Turner Construction report: Green buildings still on the agenda
Green buildings continue to be on the agenda for real estate owners, developers, and corporate owner-occupants, according to the Turner 2010 Green Building Market Barometer. Key findings: Almost 90% of respondents said it was extremely or very likely they would incorporate energy-efficiency improvements in their new construction or renovation project, and 60% expected to incorporate improvements to water efficiency, indoor environmental quality, and green materials.
| Nov 5, 2010
New Millennium’s Gary Heasley on BIM, LEED, and the nonresidential market
Gary Heasley, president of New Millennium Building Systems, Fort Wayne, Ind., and EVP of its parent company, Steel Dynamics, Inc., tells BD+C’s Robert Cassidy about the Steel Joist Manufacturer’s westward expansion, its push to create BIM tools for its products, LEED, and the outlook for the nonresidential construction market.
| Nov 3, 2010
First of three green labs opens at Iowa State University
Designed by ZGF Architects, in association with OPN Architects, the Biorenewable Research Laboratory on the Ames campus of Iowa State University is the first of three projects completed as part of the school’s Biorenewables Complex. The 71,800-sf LEED Gold project is one of three wings that will make up the 210,000-sf complex.
| Nov 3, 2010
Park’s green education center a lesson in sustainability
The new Cantigny Outdoor Education Center, located within the 500-acre Cantigny Park in Wheaton, Ill., earned LEED Silver. Designed by DLA Architects, the 3,100-sf multipurpose center will serve patrons of the park’s golf courses, museums, and display garden, one of the largest such gardens in the Midwest.
| Nov 3, 2010
Public works complex gets eco-friendly addition
The renovation and expansion of the public works operations facility in Wilmette, Ill., including a 5,000-sf addition that houses administrative and engineering offices, locker rooms, and a lunch room/meeting room, is seeking LEED Gold certification.
