02 Feb What’s Next in the Real Estate Game?
Every major college and NFL football team sees its game plan shaped by its offensive and defensive coordinators, working in concert with the head coach in order to stay ahead in the game.
For real estate, 2016 will see investors, developers, lenders, users, and service firms intertwined in a similar dance, leaning on intense and sophisticated coordination of both their offensive and defensive game plans. ULI and PWC provides it 37th edition of Emerging Trends in Real Estate. To help you with your game strategy, here are the top 4 U.S. trends to watch for in the next year.
1.Secondary markets will be the new go-to.
Secondary markets are emerging as the great value proposition and the industry is seeing a growing confidence in the potential investment returns in these markets. Why? Because these markets, i.e. Austin, Denver, San Diego and San Antonio are now seen as “hip,” and that is more than enough incentive for investors to turn their heads.
Value-add investors can access multiple sources of real estate financing from insurance companies, CMBS lenders, private equity firms, and cross-border investors. With this positive liquidity profile and socioeconomic fundamentals, asset selection in secondary markets should pay off as a 2016 strategy.
2.Next Stop: Suburbs
The suburbs will see new life. Industry professionals agree that there are roughly ten dynamic downtown areas in all the U.S., and the rest of the areas are in the suburbs. As prices rise in core gateway markets, there is a growing interest in new, fresh opportunities in suburban areas.
A recent ULI survey points out that a large number of millennials prefer to live in the suburbs than currently do, but most enjoy the urban feel of the city. One economist noted, “this group won’t move to the suburbs of their parents.” These locations will have to offer urban and suburban benefits such as greater connectivity, walkable communities that are transit oriented. Cohousing solutions, micro housing, and other design trends are addressing some of these issues growing household preferences.
The Emerging Trends survey also revealed that affordable and workforce housing are ranked higher in importance for this year, than from the last five years — named one of the “Top Issues to Watch” for 2016. And the pressure mounts for increased tax credits, flexible zoning, and better public/private finance tools.
3. Infrastructure needs improvement
Investment professionals say that the U.S. is losing the global infrastructure battle and that the conventional approach to infrastructure improvement is “disheartening.” A recent ASCE report gives the U.S. a D+ grade in this area, and although state-by-state updates are being made, the results are not showing much in improvement (Georgia was given a C).
The ASCE estimates that $3.6 trillion will be needed in infrastructure spending by 2020, but this seems way out of reach. There will be a need in the next year to re-prioritize urgent repair and maintenance, and tackle critical needs in such areas as water supply, distribution, as well as parking and transportation.
4. Capital flow: where does it go?
The flow of capital into the U.S. real estate market is on a steady increase. Total acquisition volume for the 12 months ending June 30, 2015, was $497.4 billion, up 24.6 percent year-over-year, according to report findings. While experts agree this growth is not sustainable, investors expect to have wealth availability in the 2016 that is equal to, or greater than last year’s.
Economists project that this new capital will be invested in the following:
The Big Picture
The U.S. market in real estate contains many niches, with tremendous diversity, which is a key strength, but is not a “one size fits all” type of deal. The industry has become ever more dynamic as it adapts to a more networked world. The major forces of globalization, technology, urbanization, and demography are constantly interacting with each other, and consequently, so are all the players in the real estate game. In an ever more competitive environment, with well-capitalized players crowding the field, disciplined attention to strategy and execution is critical to success.