10 trends shaping real estate in 2015
The 36th annual Emerging Trends in Real Estate report by PricewaterhouseCoopers and the Urban Land Institute points to 10 changes in the industry that are gaining momentum:
The 18-hour city
A phenomenon that began 20 years ago, the “city that never sleeps” applies to more than just the Big Apple nowadays. In fact, the study, based on interviews with 1,400 industry experts, notes the phrase “has become part of the common lexicon of the real estate industry and of city planners.”
Downtowns are increasingly vibrant beyond the workday, as they combine offices, apartments, stores and restaurants all within walking distance of each other. This, in turn, the researchers offer, is raising the quality of life in cities like Raleigh-Durham, Charlotte, Denver, Greenville, Charleston, Portland and Atlanta, not just in larger urban hubs.
The growing millennial/boomer influence
While the millennial generation is larger than the baby boomer cohort, its influence has not overshadowed the older group.
In fact, researchers are unclear about which direction the young adults of the millennial generation will take real estate, as they continue to choose to rent homes instead of buy them while they pay off student debt and put off marriage and family.
For now, the report notes, “Renter by choice is still a potent force,” and it predicts that apartment living will continue to appeal to young adults “for a while.”
In the meantime, the 77 million baby boomers “continue to set trends,” the researchers say. Among them: They’re moving to city centers and are likely to stay there longer than millennials do; they’ve fallen out of love with golf-course retirement communities; they want to live near good medical facilities; and they’re not moving as far South as retirees traditionally have. “Think Carolinas rather than Florida,” one investor told the researchers.
The labor shortage
Robust job growth is key to filling office buildings and enabling consumers to buy homes, rent hotel rooms and keep shopping centers in business. Those activities, in turn, create the need to build office buildings, homes, hotels and stores.
Although the Bureau of Labor Statistics estimates that 3.5 million people who are looking for jobs have been unemployed for at least six months, the economy created 200,000 jobs per month last year. The ones that remain unfilled require skills that employers are struggling to find among job-seekers, leading the report’s authors to suggest the need for immigration reform that can welcome skilled workers to the U.S. to fill open jobs.
The expansion of technology
The continued adoption of technology across industries is diminishing the need for office and retail space as businesses consider the Internet both a boon to the bottom line and a competitor.
The terms for business space in the future, the study suggests, will be more flexible. For example, a company might need 3,000 square feet of office space to house the employees it needs to get itself up and running. But once it is, its workforce is likely to shrink, and some of that work can be done virtually, leaving the business needing up to two-thirds less physical space.
The influx of foreign capital
As investing their money at home becomes riskier, foreign investors are sinking their capital into “durable, proven” U.S. real estate, the study notes.
Among those seeking shelter for their money in U.S. property are Canadians, with $15.1 billion of U.S. investment, and investors from Norway, China, Japan, Hong Kong, Germany, Israel and Australia depositing between $2 billion and $4 billion each.
The changing climate for investment managers
Stiff competition in the retail, office and hospitality real estate investment trust industries is sharpening efforts for efficiency, effectiveness and economy, the report states.
The authors foresee a raising of the bar for performance among investment managers; a move by large investors to take more control of their pension funds; and a continuing demand by capital sources for more services at lower prices.
The demand for investment products
The industry will aggressively push real estate as part of retirement investment portfolios, the study predicts. “Who can doubt that new products directed specifically to this capital source will be emerging over the coming years?” the authors ask.
As the industry creates options for individual investors—and for the institutional investors who represent some of them—it will need to educate them and the financial analysts about commercial property, the report notes.
The crumbling infrastructure
“Real estate,” one industry expert told the researchers, “depends upon ease of commutation.” But more and more, the roads and bridges that might allow for an easy commute are doing the opposite.
Traffic congestion caused by roads in ill repair or that haven’t expanded in proportion with an area’s growth slows down the arrival of employees to work, the delivery of goods, the adoption of new technology, and economic development, the authors write. So a crumbling infrastructure “is going to be painful for real estate if problems are left to worsen.”
The healthy housing market
“A healthy story for housing is shaping up,” notes the report. Its authors anticipate moderate—but stable—price increases.
The researchers credit their optimistic view, in part, to the “discipline [that] looks to be governing” mortgage lenders, low interest rates, and a “relatively high” affordability index.
The dark side
Some of the experts who participated in the survey expressed concern that another real estate bubble could form—and burst—if the industry forgets the pre-recession lessons.
The authors urge caution as banks loosen their underwriting criteria, property prices climb to artificially high levels in traditional boom/bust markets, and investors buy too much for too little in markets that might not produce the return on investment they need.
View the full report here.