FRANCIS ZERA FRANCIS Emerging Trends in Real Estate® United States and Canada 2018 Emerging Trends in Real Estate® 2018 A publication from: Emerging Trends in Real Estate® 2018 Contents 1 Notice to Readers 71 Chapter 4 Property Type Outlook 72 Industrial 3 Chapter 1 Navigating at Altitude 76 Apartments 4 Long Glide Path to a Soft Landing 80 Single-Family Homes 6 Working Smarter and Working Harder 83 Office 9 Procession of the Generations 87 Hotels 10 But Don’t Forget the Baby Boomers 89 Retail 11 It’s Different This Time . Isn’t It? 13 Housing at a Technological Tipping Point? 93 Chapter 5 Emerging Trends in Canadian 15 Retail Transforms and Stores Remain Real Estate 16 Tax Reform: It’s Going to Take Some Time 93 Rebalancing Portfolios to Create Advantage This Time 94 Rethinking How to Address Affordability 17 Replacing the Yardstick 96 Transit to Transform Cities 19 Staying on the Radar 97 The Rise of Placemaking 21 Expected Best Bets for 2018 97 Making the 18-Hour City a Canadian Reality 97 Reinventing Real Estate through Technology 23 Chapter 2 Capital Markets 99 The Global War for Talent 24 The Debt Sector 99 Property Type Outlook 29 The Equity Sector 105 Markets to Watch in 2018 35 Summary 109 Expected Best Bets for 2018 36 Chapter 3 Markets to Watch 110 Interviewees 36 2018 Market Rankings 37 Market Summaries Emerging Trends in Real Estate® 2018 i Editorial Leadership Team Emerging Trends Chairs PwC Advisers and Contributing Researchers Mitchell M. Roschelle, PwC Aakriti Sondhi* Haley Anderson Nicholas Mitchell Patrick L. Phillips, Urban Land Institute Alex Howieson* Howard Ro Nicholas Way Alexandra Gomez* Ian Gunn* Nick Ethier* Authors Alpa Patel* Ian Nelson Nik Woodworth* Hugh F. Kelly Amy E. Olson Jacqueline Kinneary Oliver Reichel Andrew Warren André Voshart* James Oswald Pascale Lavoie* Anita Kramer Andrea Bianchini* Jamie Clark* Pat Alford Authors, Chapter 4 Property Type Outlook Andrew Alperstein Jane Merkovitch* Paul Mai* Andrew Popert* Jasen Kwong* Qiyan Mai Chris Caton, Industrial Angelo Talamayan* Jean-François Thuot* Rachel Klein Nick A. Egelanian, Retail Annie Labbé* Jeff Kiley Rafal Piotrowski* Abhishek Jain, Hotels Armando Pinedo* Jennifer Dybick Rahim Lallani John McManus, Apartments and Single-Family Homes Avery Munger Jessica Gordon Rajen Shah* Paige Mueller, Office Bill Staffieri John Bunting* Ray Witkos Contributors Blake Evans John Satelmajer Renee Sarria Braiden Goodchild* Joseph Moyer* Ricardo Ruiz Beth Burnham Mace Brian Colantuoni Joseph Schechter Richard Fournier Billy Grayson Bud Thomas Josh Parks Richard Probert* Taylor Gunn Carly Stallwood* Justin Hafen Rick Munn Senior Advisers Cathy Helmbrecht Katie Kennelly Robert Sciaudone Christopher J. Potter, PwC, Canada Charles Campany Kelly Nobis Roberto D’Abate* Miriam Gurza, PwC, Canada Chase Evans Kelsey Edelen Ron Bidulka* Chris Dietrick Kelsey Euell Roxanne Carrier* Frank Magliocco, PwC, Canada Chris Vangou* Ken Griffin* Ryan Ciccarone ULI Editorial and Production Staff Christian Marchardt Ken Su* Ryan Dumais James A. Mulligan, Senior Editor Christopher Bailey Kristen Conner Santino Gurreri* David James Rose, Managing Editor/Manuscript Editor Christopher Blanz Kristianne Machart Scott Kirkman Betsy VanBuskirk, Creative Director Christopher Mill Kristy Romo Scott Williamson Anne Morgan, Cover Design Christopher Nicholaou Kyle Chin Seth Kemper Corey Thomas Laura Daniels* Seth Promisel Deanna Pineda, Muse Advertising Design, Designer Courtney Sargent Laura Hildebrand* Shareen Yew Craig Chapman, Senior Director of Publishing Operations Dan Boyce Laura Lynch Simon Dutil* Owen Benge, Senior Associate, Capital Markets Daniel D’Archivio* Leah Waldrum Stan Oldoerp Margaret Gallagher, Intern, Capital Markets Daniel J. Ryan Lee-Anne Kovacs* Spyros Stathonikos* Danielle Sercu Lisa Guerrero Stacey Piesner* Dany-France Lisa Pambianchi Stephan Gianoplus Emerging Trends in Real Estate® is a trademark of PwC and is regis- Rhéaume* Logan Redlin Stephen Cairns tered in the United States and other countries. All rights reserved. David L. Baldwin Lori-Ann Beausoleil* Steve Baker At PwC, our purpose is to build trust in society and solve important David Baranick Lorilynn Monty Steve Tyler problems. PwC is a network of firms in 157 countries with more than David Huffman Lou DeFalco Steven Weisenburger 223,000 people who are committed to delivering quality in assurance, David Leavitt Mais Jarjour-Ouzon Susan Farina* advisory and tax services. Find out more and tell us what matters to you David Seaman Marcel Sow Susan Kelly by visiting us at www.pwc.com. Dean Osmond* Marcus Lam* Susan Smith © 2017 PwC. All rights reserved. PwC refers to the U.S. member firm or Donato Lisozzi* Maria Aiello* Tom Wilkin one of its subsidiaries or affiliates, and may sometimes refer to the PwC Douglas Struckman Martin Schreiber Tracy Burton network. Each member firm is a separate legal entity. Please see www. Dwayne MacKay* Matthew Berkowitz Tressa Teranishi* pwc.com/structure for further details. Eli Rabin Matthew Horn Warren Marr Emily Pillars Maxime Lessard* Wesley Mark* © September 2017 by PwC and the Urban Land Institute. Eric St-Amour* Meghan O’Brien William Hux Printed in the United States of America. All rights reserved. No part of Eric Tso Michael Anthony Yousuf Abbasi this book may be reproduced in any form or by any means, electronic Ernest Hudson* Michael Elger Zoe Funk or mechanical, including photocopying and recording, or by any infor- Eugene M. Chan Michael Wolfson mation storage and retrieval system, without written permission of the François Berthiaume* Miranda Hardy* publisher. Frans Minnaar* Miranda Tse *Canada-based. Fred Cassano* Molly Williams* Recommended bibliographic listing: Fréderic Lepage* Nadia King* PwC and the Urban Land Institute: Emerging Trends in Real Estate® Gloria Park Nadja Ibrahim* 2018. Washington, D.C.: PwC and the Urban Land Institute, 2017. ISBN: 978-0-87420-409-4 ii Emerging Trends in Real Estate® 2018 Notice to Readers Emerging Trends in Real Estate® is a trends and forecast publication now in its 39th edition, and is one of the most highly regarded and widely read forecast reports in the real estate industry. Emerging Trends in Real Estate® 2018, undertaken jointly by PwC and the Urban Land Institute, provides an outlook on real estate investment and devel- opment trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues throughout the United States and Canada. Emerging Trends in Real Estate® 2018 reflects the views of individuals who completed surveys or were interviewed as a part of the research process for this report. The views expressed herein, including all comments appearing in quotes, are obtained exclusively from these surveys and interviews and do not express the opinions of either PwC or ULI. Interviewees and survey participants represent a wide range of industry experts, including investors, fund managers, developers, property compa- nies, lenders, brokers, advisers, and consultants. ULI and PwC researchers personally interviewed more than 800 individuals and survey responses were received from more than 1,600 individuals, whose company affiliations are broken down below. Private property owner or developer 34.0% Real estate advisory or service firm 26.8% Investment manager/adviser 6.8% Homebuilder or residential land developer 8.2% Bank lender 5.4% Equity REIT or publicly listed real estate property company 4.3% Institutional equity investor 4.1% Private REIT or nontraded real estate property company 2.3% Institutional lender 1.1% Real estate debt investor 0.6% Securitized lender 0.4% Mortgage REIT 0.2% Other entity 5.8% Throughout the publication, the views of interviewees and/or survey respondents have been presented as direct quotations from the participant without attribution to any particular participant. A list of the interview participants in this year’s study who chose to be identified appears at the end of this report, but it should be noted that all interviewees are given the option to remain anonymous regarding their participation. In several cases, quotes contained herein were obtained from interviewees who are not listed. Readers are cautioned not to attempt to attribute any quote to a specific individual or company. To all who helped, the Urban Land Institute and PwC extend sincere thanks for shar- ing valuable time and expertise. Without the involvement of these many individuals, this report would not have been possible. Emerging Trends in Real Estate® 2018 1 2 Emerging Trends in Real Estate® 2018 Chapter 1: Navigating at Altitude Navigating at Altitude “We are in a long cycle, not in boom/bust. The key to the next few years is to expand horizons, market by market, property type by property type.” All frequent flyers know that the most critical times in air travel somewhat smaller than the others) and complex in composi- are takeoff and landing. Real estate has been soaring as of late, tion—and is contributing to real estate’s forward momentum. and thankfully so. This year’s discussions in Emerging Trends in Real Estate® focus on managing the descent safely, keeping in The pilots, however, are going to be coping with new instru- mind the lessons of past bumpy touchdowns. mentation as the guidance previously provided by the London Interbank Offered Rate (LIBOR) is replaced by a new bench- Fortunately, a sudden drop in altitude does not seem to be in mark for debt costs. It is as yet unclear what the new altimeter the offing. Instead, our survey respondents, focus groups, and for interest rates is going to look like, but the engineers are interviewees expect a long glide path for the economy and for already hard at work. the industry—the extension of the current cycle for 2018 and perhaps beyond. A tailwind of demand is expanding real estate Real estate capital managers are poring over the maps, ponder- utilization rates across a procession of generations extending ing the destination for amply available funding. As we enter from baby boomers, through the millennials, and now to genera- 2018, the money is flowing in something resembling the hub- tion Z.