From PricewaterhouseCoopers and the Urban Land Institute, here are the Top 10 real estate trends for 2015:
1.) Cities that never sleep
Around-the-clock activity isn’t just for New York anymore, according to PwC’s Emerging Trends in Real Estate forecast. Downtowns all over the country will continue to incorporate apartments, restaurants, offices and stores on city blocks so residents can walk to work and shop where they live.
The report, which calls these “18-hour cities,” identifies Raleigh-Durham, NC; Charlotte, NC; Denver; Portland, OR; Brooklyn, NY; and Atlanta as most promising markets, in terms of their developing “urban cores.”
2.) Renters by choice
Millennials won’t be abandoning their apartment lifestyles any time soon, the report predicts, although as they age, more will become homeowners. But that’s likely to take seven years or so, according to realtors interviewed for the survey, who said it will be 2020 or beyond before millennials as a group decide to either remain as city dwellers or move to the suburbs.
The authors’ advice: It could go either way. “Painting [millennials] with too broad a brush will lead to misplaced expectations—as it has with the baby boomers”—who, unexpectedly, are moving downtown instead of into warm-weather golf communities. “One size will not fit all millennials.”
3.) Empty seats
The construction industry is already smarting from massive labor shortages, and the rest of the job market is about to catch up. The report notes that the greatest influx of millennials—ages 18 to 33—into the work force has already occurred. But the retirements are about to balloon. Without enough youngsters to fill those vacated jobs, they will remain vacant.
Here’s how that affects real estate: Unfilled jobs don’t contribute to labor force growth, which is key to income growth, which leads to growth in homeownership.
4.) Smaller portions
Millennials would rather borrow than buy: Just ask the taxi companies that are losing business to car-borrowing services and the hotels that are losing reservations as young travelers who prefer to find short-term rentals to share. That trend is on the rise and is spilling into offices and neighborhoods, where developers are having to rethink traditional designs.
The report also notes that as technology makes it easier to shop and work online—from anywhere—the number of offices and the sizes of stores are shrinking.
5.) Changing faces
Foreign investors will expand their long-standing tradition of depositing their wealth into U.S. real estate, but they won’t limit it, as in the past, to Miami and New York. Instead, markets like Phoenix, Houston, Dallas and Hawaii will grow as hotbeds of foreign-owned apartments and hotels.
“International investors,” write the forecast’s authors, “are considered to be the best prospect for increasing investment volume in 2015.”
6.) Tighter grip
For publicly traded building companies—and all corporations, the study notes, efficiency and performance will become more important as investors “want more services for less money” and as competition becomes fiercer.
7.) Under new management
Americans’ retirement plans contain a collective $23 trillion, and the study’s authors expect to see a concerted push by public real estate funds to convince retirees to invest some of that money in real estate. An “institutional-like allocation” into real estate of as little as 5% could add up to more than $300 billion, the report notes.
“Who can doubt that new products directed specifically to this capital source will be emerging over the coming years?” the writers query. “The real estate industry is challenged to create a better option for this generation.”
8.) Building bridges
Roads and bridges, and transit, water, electrical and communications systems, the report posits, are “the foundation of our commerce,” but they are” eroding around us.” And the U.S., it says, is not investing in the upgrades and updates that the country will need to stay competitive.
That lack of attention, the authors note, could be “painful” for real estate. Impatient millennials, for one, will stay away from cities whose roads are congested or that do not have the fastest communication technology. But they predict that for the nation to invest the money needed to solve infrastructure problems, “it may take a catastrophe.”
9.) Return to normal
One area of real estate that seems to be sorting itself out, the report says, is housing. “Remarkably, housing seems to be putting the excesses of the bubble and the ensuing collapse behind it” and is “returning to the classic principles of supply and demand,” the authors write.
Their rationale: U.S. households continue to form at a steady pace, albeit more in rental housing than in new, single-family homes. And while many economists criticize how hard banks have made it for consumers to qualify for mortgages, this study sides with the creditors, saying “discipline” is keeping home prices from over-inflating and the lack of “shady mortgage deals” has led to “a healthy story” for housing.
10.) Past is prologue
That’s not to say America is immune from another real estate bubble, the authors caution. “Excessive optimism,” they point out, “can promote recklessness.”
They urge investors, lenders and consumers not to “forget the hard-learned lessons of the recent past.” So while they predict it will be easier for potential homeowners to get mortgages next year, they warn that trends tend to be short-term and cyclical, so a long, slow recovery—as this one has been—runs the risk of outlasting the positive trends.