A dance of capital continues to twirl its way from East to West and compete with domestic capital. What trends are in store for investors in 2016 interested in North American property markets? According to the Urban Land Institute and PwC’s recent Emerging Trends In Real Estate: United States and Canada 2016, here’s an overview of the top 10 trends investors can expect:
18-hour cities 2.0
Global and domestic investors are demonstrating growing confidence in the investment potential of U.S. secondary markets such as Austin, Denver, San Antonio and San Diego as they cast a wider net for deals beyond more expensive 24-hour gateway cities. Though traditionally more volatile, 18-hour cities currently have lower-than-average supply pressure, increasing their attractiveness.
Next stop: The suburbs
The real estate market has managed to replicate the attractive components of an urban environment in select suburban locations, with mounting evidence millennials eventually will make their way from urban centers to outer neighborhoods and even select suburban areas that are walkable, transit-oriented, mixed-use and provide all of the amenities to which they have grown accustomed.
Offices: Barometer of change
Design of new space must be appealing to the workers that companies hope to attract, as well as the more flexible way work is being done via technology. The U.S. office sector, benefiting from an economic recovery and job growth, simultaneously is experiencing the initial exit of the baby boomers from the workforce, leaving generation X in charge of a growing millennial workforce.
A housing option for everyone
Over the short term, the advantage remains with investors and developers in the rental-housing sector as the homeownership rate continues to decline down to a narrow range around its 50-year average of 65 percent. Over the long term, all residential segments will see greater housing demand. Co-housing solutions, micro housing, and other design trends are addressing some of the scarcity and lifestyle issues shaping household preferences.
Parking for change
The trend is moving from providing enough parking to being able to profitably repurpose current parking holdings as alternative commuting methods are reducing tenant demands for parking spaces per employee. Alternative work arrangements also are affecting tenants with a large number of workers that may be in the office at the same time.
Infrastructure: Network it! Brand it!
Infrastructure solutions in the United States traditionally have been allocated to large government-sponsored projects. With infrastructure needs growing and becoming more varied in markets across the country, opportunities exists for private investment to become more involved in providing solutions.
Food is getting bigger and closer
Urban farming is one way to meet the urbanites’ growing desire to eat fresh, more nutritious food. Rooftop use for urban farming also can bring new life to obsolete urban industrial properties. New York City has one operation that produces more than 300 tons of vegetables in three hydroponic operations in Brooklyn and Queens.
Consolidation breeds specialization
Real estate market consolidation continues as market participants search for larger market share and operating efficiency through acquisition. There is room, however, for those who specialize given real estate is still a hands-on investment that benefits from local expertise.
We raised the capital, now what do we do with it?
Global uncertainty and financial market volatility continue to drive domestic and global capital into U.S. real estate, particularly the big six markets. With pricing already near record levels for a number of markets and property types, investors are expected to look to additional markets (such as 18-hour cities), atypical alternative assets (e.g., cell towers and outdoor advertising), renovation and redevelopment, and alternative property types (e.g., medical office, senior housing, data centers and lab space).
Return of the human touch
While technology, big data, algorithms and increased market transparency have enhance investors’ ability to target specific investments with increased underwriting assumption confidence, the human touch and experience are necessary for everything to come together.
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Jennifer Molloy is senior editor of Institutional Real Estate Asia Pacific.
