Emerging Trends in Real Estate® 2015

Emerging Trends in Real Estate®
The global outlook for 2015
 

What are the best bets for investment and development in 2015?

Our forecast gives a heads-up on where to invest, which sectors and markets offer the best prospects, and trends in the capital markets that will affect real estate.

Now in its 36th year, Emerging Trends in Real Estate® is one of the oldest, most highly regarded annual industry outlook for the real estate and land use industry. It includes interviews and survey responses from hundreds of leading real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.

  Top ten emerging trends for 2015

1. The 18-hour city comes of age

The urbanization of America has given life to cities that had been historically nine-to-five. According to interviewees, no longer is it accepted that only the great coastal cities can be alive around the clock and on weekends. Downtown transformations have combined the key ingredients of housing, retail, dining, and walk-to-work offices to generate urban cores, spurring investment and development and raising the quality of life for a roster of cities. Buyers have more markets to consider now that the 18-hour centers are putting the elements in place to ratchet up their investment capital flows.

2. The changing age game

The millennials are an even larger cohort than their parents - the baby-boom generation. While the tendency of millennials to postpone homeownership and rent longer will affect the apartment sector over the next several years, many survey interviewees noted that investors should consider how the housing preferences of millennials could change in the 2020s. Looking beyond the millennials, the report anticipates further industry changes resulting from the emergence of the smaller "Generation Z." Planning for a nation with lesser household formation, fewer new consumers, and a meager number of workforce entrants is the challenge ahead for a real estate industry with its eye on the 2020s. The report also notes that baby boomers - as workers and retirees -- will continue to have a significant impact on real estate development and investment for at least two more decades.

3. Labor markets are trending toward a tipping point

The report states that forward-looking businesses are waking up to a realization that while we were worried about the "jobless recovery," longer-term labor market trends were moving in exactly the opposite direction. Retirements will accelerate while the peak of millennial labor force entrants has already passed. Within a few years, the talk will be about labor shortages, not surpluses. The notion that "jobs are chasing people" will morph into a primary rule of the labor market. Survey respondents place job growth at the top of the list of most important issues for real estate, closely followed by the related concerns of wage and income growth.

4. Real estate's love / hate relationship with
     technology intensifies

No form of real estate is exempt from the exponential expansion of technology. Interviewees see technological disruption as providing new business tools and environments, opening new business paths, and cycling forward as a source of user demand in an era when more traditional industries may be sluggish. Technology is pushing change in space use, locations, and demand levels at an accelerated pace. It is now the norm to anticipate, strategize, and respond to new technologies before they are mainstream. Overall, the fear factor about technological disruption is easing, according to surveyed respondents. E-commerce and crowdfunding, for example, are being viewed as an adaptation challenge, as retailers become "omnichannel distributors" and e-tailers begin to open brick-and-mortar stores.

5. Event risk is here to stay

There is nothing new in seeing investors along the continuum from "core" to "opportunistic," but the trend will be that such distinctions are heightened over time, and 2015 looks to be a year when this will be especially evident, interviewees note. The reason is that the concern about "event risk" is troubling the minds of more and more interviewees (geopolitical risks, global unrest, and natural disasters). This is why international investors are considered to be the best prospect for increasing investment volume in 2015, according to the survey.

6. A Darwinian market keeps the squeeze on
     companies

Competition is unrelenting, and the need to have a clear "brand identity" is important as firms seek to navigate in the swift stream of capital. The recent spin-off activities in the retail, office, and hospitality real estate investment trust (REIT) sectors sound a theme that will echo as a trend in 2015. The drive for efficiency and effectiveness in both service delivery and cost will filter from investor expectations down to the service providers, the report states.

7. A new 900-pound gorilla swings into view

Emerging Trends 2014 alerted readers to the establishment of the Defined Contribution Real Estate Council to help plan sponsors and their participants achieve better investment outcomes through the use of institutional quality real estate. With a combined $12.6 trillion in capital, individual retirement account (IRA) and defined contribution (DC) funds will be identifying and taking advantage of the benefits of having high-quality commercial property in a mixed-asset portfolio.

8. Infrastructure: time for the United States to get
     serious?

For all our vaunted technological innovations, the foundation of our commerce is eroding around us. It's not just bridges and roads - since 2009, spending on educational buildings and health care facilities (by both public and private sectors) is down by one-third in real-dollar terms.

9. Housing steps off the roller coaster

Housing seems to be putting the excesses of the bubble and the ensuing collapse behind it. The trend in residential real estate, according to interviewees, looks to be returning to the classic principles of supply and demand. As this major segment of the economy returns to textbook fundamentals, confidence in the residential sector should continue to rise.

10. Keeping an eye on the bubble - emerging concerns

The generally positive outlook flowing from this year's Emerging Trends interviews and survey does have a dark side. Upcycles breed optimism, but excessive optimism can promote bad investment patterns. However, in most cycles, overbuilding and excess leverage would likely have already started building momentum by now. To the degree that hasn't happened, the industry looks like it has learned some lessons in self-regulation and self-correction.

 


 

 


Millennials: Driving change
Technology & energy fields are driving job growth
 
Increasing investment volume in 2015
Profitability forecast
 
Jobs are chasing people
Profitability forecast


Additional PwC insights on the future of real estate

Real Estate 2020: Building the future includes a series of predictions to provide guidelines for real estate investment community participants to prepare their operating models, people and processes for the changes ahead

Cities of Opportunity 6 analyzes the trajectory of 30 cities, seeking to open a window on what makes cities function best. We also investigate both the urbanization and demographic megatrends that shape our cities. 

Cities of Opportunity 6: We the urban people complements our quantitative comparative approach in Cities of Opportunity 6 with an entirely human approach, offering a discrete examination of the demographic factors at work in city life – ages, densities, dependencies and even the preferences of people who make cities live today and thrive tomorrow. 

 

Key themes

What is the industry saying?

“It is possible to stretch for opportunities—you just have to be aware of how much runway you have left in the current cycle.”

What is the industry saying?

“National players are coming in, drawn by our job growth. The urban core is competing again.”

What is the industry saying?

“Renter-by-choice is still a potent force. Apartments will retain their appeal for a while for millennials, spooked by what happened to home-owning parents.”

What is the industry saying?

“Investors should be thinking what millennials will look like in –six to seven years.”

What is the industry saying?

“Watch for a seven-year trend before millennials will have to make the decision about whether to stay urban or move to outer areas or the suburbs.”

What is the industry saying?

“Aging baby boomers will continue to set trends. “The leading edge is now 65 to 73 years old. The move to city centers by this group may have more staying power than the millennial generation.”

What is the industry saying?

"Labor force growth in the next few years will drop to the slowest growth rate since the end of WWI and the influenza breakout. Without a change in immigration policy, the U.S. will face a severe shortage of workers.”

What is the industry saying?

“Downsizing of office and retail will continue as technology enhances workability, shopping, and overall living.”