Tag Archive for: real estate trends

ULI, PwC Identify Top Markets To Watch In 2022 As Real Estate Investment Powers Up

Businessman looking through binoculars

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

 

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The Key Issue For Commercial Real Estate? It’s Politics

In disruption there is opportunity as well, and the Counselors of Real Estate’s annual list of the Top Ten Issues Affecting Real Estate certainly goes heavy on disruption.

It’s also not a list of items that can be ticked off and dealt with one by one: in announcing the 2017-2018 CRE Top Ten list earlier this month, Scott Muldavin, chair of the invitation-only Counselors, noted that many of the issues are interconnected and reflect both global uncertainty and seemingly relentless disruption in the economy and multiple real estate sectors.

Heading the list is a hydra-headed issue that has an impact on all of the others because, as FTI Consulting’s Michael Hedden points out, it makes reaching decisions on anything more difficult. The issue is global uncertainty and political polarization, as exemplified by recent elections in the US, the UK, France, Austria and other countries.

The Counselors see “resurging nationalism, testing existing diplomatic and trade relationships around the globe as exemplified by Brexit and NATO.  Potentially devastating military conflicts seem more likely in Asia and existing conflicts in the Middle East are more volatile.” Within the US, its scope isn’t limited to Washington, DC by any means, but carries through to the local level as well.

For real estate, the negative implications are immediate, according to the Counselors: “Uncertainty about changes to trade, travel and immigration policy threaten cross-border investing, hospitality properties, retail, and manufacturing supply chains, among other effects. Rising interest rates and retail inflation will make middle-class homeownership that much more difficult.”

Longer-term implications, the Counselors warn, “could be much more severe, as polarization prevents long-term fixes to issues such as infrastructure, affordable housing, local and state pension liabilities, and education. And so, one or both of these trends affects virtually every issue on this year’s list and a host of others that didn’t make the cut.”

On a brighter although no less disruptive note is the second item in CRE’s list, the technology boom. This boom encompasses everything from the tech start-ups that are revolutionizing commercial real estate operations to ecommerce and the trend toward autonomous cars that may eventually render parking garages obsolete.

In retail, according to the Counselors, “the question has shifted from ‘Do you shop online?’ to ‘How many deliveries did you have today?’ Online retail continues to drive warehouse demand—but each foot of new warehouse space leased by online retailers translates into eight feet of vacant retail. Smart lenders and investors are already insisting that new construction reflect future demand patterns, not those with which we are currently familiar.”

Third on the list is generational disruption. A few years ago, Baby Boomers (formerly the largest generation by population) and Millennials (who now outnumber them) were perceived as by and large going their own ways.

 “The generations are crossing paths everywhere: in the workplace, in housing and at the local bar and grill, intersecting and sharing spaces, despite their often disparate priorities when it comes to the built environment.” the Counselors say. “Studies project that Millennials will ultimately behave in a fashion similar to Boomers—but do so 10 years later.”

Other issues on the latest CRE Top Ten list include retail disruptions, infrastructure investment, housing: the big mismatch, lost decades of the middle class, real estate’s emerging role in health care, immigration and climate change. Issues to watch include tax reform and monetary policy, various other policy matters and cannabis.

Under the direction of research executive and author Peter C. Burley and Victor Calanog, chief economist and SVP with Reis, the Counselors’ 1,100 members globally undertook an extensive collaborative dialogue on current issues and trends to compile the final list.

 

Source: GlobeSt.