PwC US and Urban Land Institute's Emerging Trends in Real Estate 2016 highlights the continued rise of secondary markets with "hipness" cachet.
The concerns of young professional Millennials are a key driving force in real estate trends for 2016--but don't discount the importance of aging Baby Boomers in shaping investor priorities this year. Among the 10 top real estate trends to watch this year according to Emerging Trends in Real Estate® 2016, co-published by PwC US and the Urban Land Institute (ULI), are the rise of smaller cities with "hipness" cachet and a return to the suburbs--reinvented as multi-use "villages."
Both young adults and their looking-towards-retirement parents are seeking the same thing: livable, walkable communities where you can live, work, and play. Priced out of gold standard 24-hour gateway cities, investors seeking development opportunities with the highest potential returns are focusing on secondary markets "that are suddenly 'hip.'"
Emerging Trends 2016's Top 20 Markets for Real Estate Investment and Development
"Advancements in technology that are affecting how people live, work, learn, socialize, and get around are reflected in the rising popularity of cities other than the largest coastal markets as magnets for investment," said ULI's Global Chief Executive Officer, Patrick L. Phillips. "More and more of these cities are gaining a competitive edge by positioning themselves as vibrant, more affordable places to live and work, with amenities that appeal to different generations."
Recently, I sat down with Chase Martin, senior vice president of development at The Cordish Companies, which has thrived on developing in "18-hour cities". Martin and I discussed PwC and ULI report's 10 top trends in real estate for 2016:
1. The rise of "18-hour cities".
Trends in 2016 solidify the fall from grace of 24-hour gateway cities as the focus of real estate investment. With the exception of San Francisco and Los Angeles, the top 10 markets to watch for in 2016 are 18-hour cities. These cities, according to PwC's Roschelle, offer a strong mix of assets including an attractive cost of living, an attractive cost of doing business, and a workforce that's a mix of Baby Boomers and Millennials. The Cordish Companies has been riding this trend for over 100 years, building on its roots in Baltimore, and Martin isn't surprised other investors are finally catching on.
"It usually starts with the vision of a city leader who believes the city deserves more," said Martin. "These are real cities, and they deserve significant development. What people are asking for isn't new. If you look back to the early 1900s, city centers were delivering what people want today in the urban core--a mix of residential, shopping, entertainment, meaningful public spaces. New developments are bringing that back."
2. A return to the suburbs.
Don't write the suburbs off just yet! With rising prices in core gateway markets, suburban locations are looking better than ever. In the top 40 metro areas, 84% of all jobs are outside the center-city core. Millennials who are flocking to dense urban markets today will begin to migrate outwards as they marry and have children in coming years. The key difference: they'll seek a new kind of suburb that better reflects their dynamic live/work/play lifestyle. Desirable suburbs have a 20-minute transportation link to jobs in the center city, and they're becoming more dense with "suburban downtowns" that feel more like 18-hour cities than the sprawling residential-only developments of the past.
3. Office innovation is driving change.
Surveyed respondents see the redesign of offices as a way to accommodate changing work styles and to attract and keep talent. From entrepreneurial start-ups to multinationals, businesses are rethinking the nature of work, and workspaces are evolving to accommodate those changes, creating a dynamic market for repurposing existing assets and new projects that redefine the meaning of "office."
4. Housing diversity increasingly important.
The housing market is dealing with the challenge of providing housing options that work for a very diverse demographics mix--from baby boomers to aging Millennials. Creating a mix of housing that works for everyone has ceased to be perceived by the industry as a "nice thing to do"--it will shape housing trends moving forward.
5. The downfall of parking.
With miles traveled by car down 23% for people aged 34 years and younger, acres of parking will no longer be an optimal land use in both 24-hour and 18-hour cities. Those endless fields of asphalt will pose both a challenge and an opportunity.
6. Infrastructure investment.
The ability to navigate complex partnerships will be increasingly important as cities address a backlog in infrastructure maintenance alongside population growth. Creative solutions and infrastructure that contribute to livability and convenience are becoming an essential element of a city's brand.
Martin says that it's important to consider infrastructure as a moving target, "We always consider infrastructure first and make sure we have the infrastructure for future development in place at the start. I'm also fascinated by the way technology permeates every aspect of our lives, and not just in residential and office. In The Cordish Companies sports-anchored and entertainment projects, we always consider how to make sure people can stay connected with their networks while they're visiting."
7. Creative land uses in the inner city.
A decade ago, nobody had ever heard of a food desert. Today, the locavore movement and urban farming have begun a process of the "creative adaptation of inner-city uses" according to the report. Urban farms, farmer's markets, and interactive art are just a few manifestations of a new vision of land use in urban communities.
8. The rise of small, specialized developers.
In coming years, trends in development, equity investment, and lending will lead small developers to take the lead as the most innovative sector of the business. Major projects will always go to developers with scale and capital but those in the middle may need to choose a side and either go big or scale themselves to a niche market in order to make smaller projects profitable.
9. Diverse opportunities.
There will be plenty of capital to spend, but how to spend it? The report suggests that there will be many routes to success: new markets including the 18-hour cities, alternative assets that will expand the definition of "real estate," the rise of adaptive re-use of older spaces, and alternative property types (from data centers to lab space, medical offices and senior housing) will all shape the real estate market moving forward.
10. Return of the human touch.
One key trend for 2016 is the focus on more intensive active management--human insights as a way of dealing with the flood of information from "big data." With risk management and the importance of cyber-security on the rise, a focus on individual decision-making is more important than ever.
As Boomers and Millennials alike push for more walkable, affordable and vibrant communities, cities are faced with a choice: revitalize neighborhoods to meet these demands, or face a decline in population, sprawling parking lots with no cars, and endless suburban "ghost towns". After talking to Martin, I'm optimistic about our future. I look forward to seeing how our mid-sized cities continue to evolve by bringing new vitality into both their city centers and suburban neighborhoods.