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
Energy-Efficient Design | Oct 24, 2022
Roadmap shows how federal buildings can reach zero embodied carbon emissions by 2050
The Rocky Mountain Institute (RMI) has released a roadmap that it says charts a path for federal buildings projects to achieve zero embodied carbon emissions by 2050.
Higher Education | Oct 24, 2022
Wellesley College science complex modernizes facility while preserving architectural heritage
A recently completed expansion and renovation of Wellesley College’s science complex yielded a modernized structure for 21st century STEM education while preserving important historical features.
Transportation & Parking Facilities | Oct 20, 2022
How to comply with NYC Local Law 126 parking garage inspection rules
Effective January 1, 2022, New York City requires garage owners to retain a specially designated professional engineer to conduct an assessment and file a report at least once every six years. Hoffmann Architects + Engineers offers tips and best practices on how to comply with NYC Local Law 126 parking garage inspection rules.
Mixed-Use | Oct 20, 2022
ROI on resilient multifamily construction can be as high as 72%
A new study that measured the economic value of using FORTIFIED Multifamily, a voluntary beyond-code construction and re-roofing method developed by the Insurance Institute for Business & Home Safety (IBHS), found the return can be as high as 72%.
40 Under 40 | Oct 19, 2022
Meet the 40 Under 40 class of 2022
Each year, the editors of Building Design+Construction honor 40 architects engineers, contractors, and real estate developers as BD+C 40 Under 40 awards winners. These AEC professionals are recognized for their career achievements, passion for the AEC profession, involvement with AEC industry organizations, and service to their communities.
BAS and Security | Oct 19, 2022
The biggest cybersecurity threats in commercial real estate, and how to mitigate them
Coleman Wolf, Senior Security Systems Consultant with global engineering firm ESD, outlines the top-three cybersecurity threats to commercial and institutional building owners and property managers, and offers advice on how to deter and defend against hackers.
Designers | Oct 19, 2022
Architecture Billings Index moderates but remains healthy
For the twentieth consecutive month architecture firms reported increasing demand for design services in September, according to a new report today from The American Institute of Architects (AIA).
Building Team | Oct 18, 2022
Brasfield & Gorrie chairman’s home vandalized by anti-development activists
Activists vandalized the home and vehicles of Miller Gorrie, chairman of Birmingham-based Brasfield & Gorrie, in protest of a planned $90 million, 85-acre police, fire and public safety training center in Atlanta.
Mixed-Use | Oct 18, 2022
Mixed-use San Diego tower inspired by coastal experience and luxury travel
The new 525 Olive mixed use San Diego tower was inspired by the coastal experience and luxury travel.
University Buildings | Oct 18, 2022
A carbon-neutral-ready university campus opens in Hong Kong
In early September, the Hong Kong University of Science and Technology (HKUST) officially opened its new, KPF-designed campus in Nansha, Guangzhou (GZ).