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Change is a major theme in this year’s Emerging Trends in Real Estate, an annual report by the Urban Land Institute and PricewaterhouseCoopers LLP, heading into 2022.

Housing affordability, soaring construction costs, climate change, proptech and the lasting impacts of remote versus in-office work are, unsurprisingly, some of the major topics and trends identified in this year’s installment. The report includes data, insights and survey responses from 1,700-plus real estate industry professionals.

While the economic recovery for the real estate industry has been better than expected since the pandemic, some adaptations and changes to the office, the way consumers shop and even how and where people live will be changed forever. The report’s survey found 47% of real estate professionals didn’t think changes implemented during the pandemic would revert back in 2022.

 “Long-term impacts from pandemic changes, such as the growing acceptance of work-from-home on the office market, are still unknown. But there’s a greater understanding that such shifts will impact commercial real estate,” said Anita Kramer, senior vice president of ULI’s Center for Real Estate Economics and Capital Markets. “A big lesson has been how things don’t have to change completely to have impact,” Kramer continued. “In the office sector, it’s not that everybody has to be working from home for changes to occur. The office sector is not dead but there will be a bit of a shift within it.”

She said when a fuller picture of how work-from-home will affect office emerges, that’ll prompt further questions: What happens to downtown businesses that rely on lunchtime crowds during the week, or older office buildings and retail centers that may be obsolete in a post-pandemic world?

Real estate investors’ capital war chests have been bolstered this year, but a disproportionate amount of money is flowing into a few sectors.

Tom Errath, managing director and head of research at Chicago-based Harrison Street Real Estate Capital LLC, said during a real estate economic forecast panel at ULI’s fall meeting this week that investors — some fairly new to real estate — are more recently wanting to understand alternative asset classes, which Harrison Street specializes in.

“We are seeing great interest from not only domestic capital but foreign capital,” Errath said. “These asset classes we focus on exist in other countries but they’re not as well developed there. If you want to access them in a meaningful way and take advantage of the transparency and liquidity that exists here, you have to be the in United States.”

Ben Breslau, Americas chief research officer at Jones Lang Lasalle Inc., also said foreign capital has been constrained during the pandemic because of travel restrictions and the inability to tour assets or markets. Once those restrictions lift, he said even more international capital will likely flow in to U.S. real estate.

Ken Rosen, chairman of Rosen Consulting Group of Berkeley, California, also said investors want to pile into the same few sectors. Disproportionately, industrial, multifamily and more niche sectors like life sciences are seeing the greatest competition from capital. The success of those sectors and more broad real estate fundamentals set the stage for more capital flowing in to commercial real estate in 2022.

But what about more traditional asset classes that have become less certain since Covid-19?

“Office remains a bifurcated sector,” said Breslau. “The flight-to-quality theme touted by many in the office space applies to investors, too. It’s not a rising tide lifting all boats but the best office space is seeing bidding wars from tenants. We have a lot of clients and investors who are getting incredibly frustrated, trying to deploy everything in two-and-a-half asset classes,” he continued, referring to industrial, apartments and alternative sectors.”That could propel savvy investors to find opportunities within sectors like office.”

“Properties are available to acquire now but investors may have to have more courage to buy what he called the more contrarian stuff,” Rosen said.

The ULI and PwC survey found most respondents felt there will be a year-over-year increase in availability of capital from lending sources, especially non-bank lending sources, in 2022 as compared to 2021. Sixty percent said they felt equity capital for real estate investing would be oversupplied in 2022.

Perhaps underscoring the continued optimism of the commercial real estate industry, 89% said they were confident about making long-term strategic real estate decisions in today’s environment, with 45% “strongly” agreeing with that statement.

ULI and PwC also identified several markets to watch in 2022.

“The scoring criteria is based on survey respondents’ scores on a city’s investment and development prospects, and other opportunities, said Kramer. “Smaller Sun Belt cities like Nashville, Tennessee, and Raleigh, North Carolina, are identified as supernova cities because of real estate fundamentals, in addition to having walkable downtowns and other factors.”

 

Source: SFBJ

 

Skyscraper Buildings Made From Dollar Banknotes

The Green Street Commercial Property Price Index increased by 4.4% last month, with prices of every asset type included in Green Street’s index increasing.

The index is now a mere 1% below pre-pandemic levels.

“Top lines are improving, cap rates are declining, and property prices are quickly recovering lost ground,” said Peter Rothemund, managing director at Green Street. “In some cases, like self-storage, industrial, and manufactured home parks, prices are hitting new highs—and are now 15-25% higher than pre-COVID marks.”

Buyers and sellers have been in a standoff over pricing since the pandemic began, and rising prices suggest that buyers are now more willing to negotiate on price.

“While some discounting has occurred in unique situations, valuations of most asset types have largely held steady or surpassed pre-health crisis levels as strong buyer interest has aligned with limited for-sale inventory,” Marcus & Millichap notes in a recent report on the phenomenon. “This dynamic has also led to cap rate compression among sought after assets.”

Pricing may also be moving because of higher transaction volume, which helps with price discovery. Commercial real estate transaction volume is expected to recover relatively quickly through 2023, to $590 billion versus $500 billion in 2021, according to the Urban Land Institute.

 

Source: GlobeSt.

As industry experts cast predictions of how various smart city sectors will evolve in the new year, one sector is offering a blurry outlook for 2019: real estate.

While commercial activity has been on the rise, particularly from expanding technology firms, shifts in e-commerce, affordable housing and residential demographics have also spurred many questions for how the urban real estate landscape will transform.

The Urban Land Institute and PricewaterhouseCoopers (PwC) has analyzed this real estate forecast and compiled insights in its 40th annual Emerging Trends in Real Estate report. While 2018 promised to be a year of tech adoption and activity among Generation Z buyers, 2019’s biggest trends will likely include cybersecurity risk management and prioritizing resilience.

“Think of this year’s trends as circles in a Venn diagram,” the report reads. “Trends will overlap, indicating that they interact, and over time those interactions (sometimes involving more than just two circles) foster new conditions that can alter either the features of the trend, its relative strength, and even its duration. We aren’t in coloring-book world anymore.”

Hot Markets To Watch

Each year, the Emerging Trends survey — which reflects the views of more than 2,300 individuals, including property owners, real estate investors, homebuilders and developers — highlights areas that rank high for investor interest.

The report authors wrote, “Growth appears to be in vogue for 2019,” noting that survey respondents favored markets with growth potential over traditional “gateway” markets.

Dallas/Fort Worth took the crown as the top market for overall real estate prospects, up from the No. 5 spot in 2018.

The top 20 list includes:

  • Dallas/Fort Worth
  • New York/Brooklyn
  • Raleigh/Durham, NC
  • Orlando, FL
  • Nashville, TN
  • Austin, TX
  • Boston
  • Denver
  • Charlotte, NC
  • Tampa/St. Petersburg, FL
  • Atlanta
  • Miami
  • Salt Lake City
  • Los Angeles
  • Orange County, CA
  • Seattle
  • Fort Lauderdale, FL
  • Washington, DC
  • Indianapolis
  • San Antonio

Seattle — which ranked No. 1 in the 2018 report — came in at No. 16 for 2019, which the authors suggested may be to the blame of the media for its coverage of the city’s real estate market. The authors also noted the list is so vastly different from last year’s list due to the impacts of 2018 tax laws. Overall, however, it is noted there is not a market in the survey that is ranked poorly based on respondent answers.

“The bottom line is that opportunities are available in all markets,” the report reads.

Experiential Retail

The surge of the e-commerce industry has turned retail on its head in recent years, transforming brick-and-mortar stores and shopping plazas into vacant canvases for new development possibilities. The rise of experiential retail will likely shake-up real estate opportunities in 2019, as developers look to “creative solutions” to take advantage of the evolving retail industry — such as combining retail and non-retail offerings into mixed-use properties.

“Over time, cities and suburbs may have the new opportunity to support — through zoning or master-plan amendments — needed development on sites previously dedicated only to retail,” the report reads. “In any given community, new uses may include housing, schools, or any activity for which land availability had been limited. These new uses will, in turn, create new demand for retail goods and services.”

Retail properties, specifically in cities, will also likely see more technology implementation in 2019 to collect consumer data and optimize the shopping experience. The report notes that this trend will become lucrative for the real estate market, suggesting that monetizing data collection of a retail building “might someday generate more income than traditional leases.”

Cybersecurity Risk Management

Cybersecurity scored 3.14 out of 5 on an “importance of issues” scale in the 2018 report. For 2019, cybersecurity is now described as an “industry disruptor” by the report authors, scoring 3.44 out of 5 on the importance scale.

“The increased flow of data and growing use of mobile devices to control facilities are raising awareness about the need for more sophisticated cybersecurity,” the report reads.

The authors list cybersecurity risk management as an issue to watch in 2019, noting that the popularity of internet of things (IoT) technology infiltrating building components has made the overall real estate industry more vulnerable to attacks. An interviewee of the survey noted the need for real estate leaders to establish “industry norms and best practices” to defend against cyberattacks and evaluate the efficiencies and vulnerabilities of such technologies.

Building Resilience

As is the trend for any smart city-related sector, building resilience into the framework of the real estate industry is crucial for long-term sustainability — especially as changes in climate have brought unprecedented destruction to a number of U.S. markets.

The report estimates natural disasters in 2017 — including Hurricanes Harvey, Maria and Irma — cost an estimated $306 billion in the U.S. These and impending natural disasters have put a heightened focus on resilience in real estate.

Two particular factors — an increase in risk and the potential for decreased property values — are driving much of the focus on resilience. Nearly 25% of the National Council of Real Estate Investment Fiduciaries (NCREIF)’s Property Index value is in cities among the 10% most exposed to sea-level rise, according to the report. Such flood risk has caused property values to decrease in some areas, particularly in flood-vulnerable regions on the East Coast; properties in such regions of New York, Connecticut, New Jersey, Florida, South Carolina, North Carolina, Virginia and Georgia had lost $14.1 billion in value between 2005 and 2017, according to the report.

The report authors suggest embracing resilient design (both of real estate properties and surrounding infrastructure) to enhance protection of at-risk markets. Such investments in resilience are said to not only benefit properties in the long run, but make them far more attractive to investors.

“Investing in resilience may also become an effective part of a community engagement strategy and help limit local opposition to a project,” the report reads.

 

Source: SmartCitiesDIVE