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
Healthcare Facilities | Jun 13, 2022
University of Kansas Health System cancer care floors foster community and empathy
On three floors of Cambridge Tower A at The University of Kansas Health System in Kansas City, patients being treated for blood cancers have a dedicated space that not only keeps them safe during immune system comprising treatments, but also provide feelings of comfort and compassion.
Building Team | Jun 13, 2022
Partnership rethinks emergency shelters to turn them into sustainable, resilient homes
Holcim and the Norman Foster Foundation have struck a partnership to rethink emergency shelters to turn them into sustainable and resilient homes.
Building Team | Jun 13, 2022
A mixed-used building to rise above Fort Lauderdale, with views of downtown and the ocean
ODA, a New York-based architecture and design studio, recently released renderings of Ombelle, a project including two residential towers in Fort Lauderdale, Fla.
Office Buildings | Jun 13, 2022
San Antonio’s electric utility HQ to transform into a modern office building
In San Antonio, Tex., the former headquarters of CPS Energy, the city’s electric utility, is slated to transform into 100,000 square feet of office and retail space on San Antonio’s famed River Walk.
Cultural Facilities | Jun 10, 2022
After 10 Years, Taiwan’s new Taipei Music Center Reaches the Finish Line
RUR Architecture has finished the Taipei Music Center (TMC), turning a 22-acre (9-hectare) site into a new urban arts district.
Building Technology | Jun 9, 2022
GSA Green Proving Ground program selects six innovative building technologies for evaluation
The U.S. General Services Administration’s (GSA) Green Proving Ground program, in collaboration with the U.S. Department of Energy, has selected six innovative building technologies for evaluation in GSA’s inventory.
University Buildings | Jun 9, 2022
IDEA Factory at U. of Maryland defies gravity
The E.A. Fernandez IDEA Factory at the University of Maryland’s A. James Clark School of Engineering has a gravity-defying form: The seven-story building’s solid upper floors emerge above the lighter, mostly glass base.
Multifamily Housing | Jun 9, 2022
Cityview's Adam Perry on multifamily housing innovation in the Western U.S.
Adam Perry, SVP of Development and Construction Management with developer Cityview, chats with Multifamily Design+Construction Editor Rob Cassidy about the latest design and construction innovations for multifamily housing in the West.
Libraries | Jun 8, 2022
Welcome to the hybrid library
Libraries have grown to become the intellectual and social hubs of campus, where, prior to March 2020, students, researchers, and faculty gathered to collaborate and connect.
Building Team | Jun 8, 2022
Alastair MacGregor to lead WSP USA Property and Buildings Business
Alastair (Aly) MacGregor has been named the executive business line leader for Property and Buildings at WSP USA, one of the nation’s largest engineering and professional services consultancies.