January 28, 2016 | Isabella Schnider
According to the 2016 Emerging Trends in Real Estate, which was just released by the Urban Land Institute, the outlook for the next 12 months is positive What trends and forces are at play in this uplifting analysis? Here's a breakdown of the 10 factors that the authors of the report, Urban Land Institute and PriceWaterhouseCoopers, and the hundreds of industry analysts they interviewed and surveyed, believe will shape the landscape for the year to come.
- Second Tier Cities Take Center Stage
The report suggests that, in addition to having a hipness factor, cities such as Nashville, San Jose, Portland, Austin and Raleigh-Durham, benefit from lower costs of living, the increasing ease of staying connected far from main hubs, more upside from affordable and available investment opportunities, and increasing sophistication from realtors and investors.
- Millennial Parents Move to the ‘Burbs
One ULI survey shows that six out of ten Gen-Y respondents expect to live in a detached single-family home five years from now. Of course, this doesn’t mean they’ll be living in the suburbs of yesterday. Suburbs (and developers) that replicate more Main Street living, including transit-oriented development and offer transportation options connected to big urban centers will see continued growth.
- Investment in the Changing Office Landscape
With the dominant trend towards open office plans—the average square foot per worker, which was 253 in 2000, is predicted to shrink to 138 by 2020. The ULI reports that office vacancies have decreased 90 basis points last year and rents are increased 2.9 percent year-over-year, trends that look certain to continue in 2016.
- New Housing Options and Ideas
Rates of homeownership have dropped from roughly 70 percent before the Great Recession, to 63.5 percent in the second quarter of 2015. What’s striking is that the shift is seen across the board in all age group. That’s led to an increased demand for rental housing, and a willingness to experiment with concepts such as microhousing.
- Pulling Up Parking Lots?
As many younger American opt out of car ownership, and tech trends such as ride-sharing and autonomous cars begin to change transportation patterns, many urban planners, government officials, and real estate owners are questioning if parking lots are the best use of downtown real estate
- Increasing Investment in Infrastructure
America’s crumbling infrastructure has been in the news for years, yet the need for new mass transit, better roads and highways, and improved aviation and rail facilities haven’t been met. This suggests there’s a great upside in new models for infrastructure funding, including public-private partnerships and real estate investment trusts (REITs).
- Urban Agriculture Is On the Rise
The ULI report suggests that an increasing number of viable urban farms and rooftop gardens, including Brooklyn Grange in New York, large urban farm operations in Detroit, and a forthcoming vertical farm in Newark, New Jersey.
- Increasing Need, and Role, for Niche Lenders
Bigger projects increasingly require more lead-time and more capital, leading many developers to turn towards larger banks. On the flip side, with larger institutions somewhat constrained by recent regulations, more nimble smaller banks and community lenders are increasingly filling the gap.
- Where Does All the Capital Go?
Capital flow into the U.S. real estate market isn’t slowing down. Total acquisition volume for the year ending June 30, 2015, was $497.4 billion, up 24.6 percent year-over-year, and the volume for 2016 is expected to be equal or greater. Channeling this pool of investment will go far in shaping the real estate landscape.
- Old-Fashioned Risk Analysis (i.e. People)
The report suggests notion of investment-by-algorithm and other data-centric tools needs to be measured against old-fashioned intuition, and a deep, personal understanding of the market or sector in question. Ups-and-downs in the market suggest that, despite increasing reliance on data modeling and computer analysis, the human touch is just as important as ever.