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Emerging Trends in Real Estate® GREGG GALBRAITH, RED STUDIO GREGG GALBRAITH, NICO MARQUES Emerging Trends in Real Estate® United States and Canada 2017 Emerging Trends in Real Estate® 2017 A publication from: Emerging Trends in Real Estate® 2017 Contents 3 Chapter 1 Playing for Advantage, Guarding 68 Chapter 5 Emerging Trends in Canadian the Flank Real Estate 4 Context: A Kinder, Gentler Real Estate Cycle? 68 More Than Mixed Use, It’s about Building 5 Optionality Communities 6 Transformation through Location Choice 78 Affordability on the Decline 8 Recognizing the Role of the Small 98 Renting for the Long Term Entrepreneurial Developer 09 Technology Disruptors Hold a Competitive 9 Labor Scarcity in Construction Costs Advantage 1 1 Housing Affordability: Local Governments 09 Global Uncertainties Weigh on the Mind Step Up 09 Ongoing Oil and Gas Woes 3 1 Gaining Entry beyond the Velvet Rope 29 Waiting for Deals 4 1 The Connectedness of Cities 92 Economic Outlook 5 1 Ready for Augmented Reality? 93 Property Type Outlook 7 1 Blockchain for 21st-Century Real Estate 69 Markets to Watch in 2017 8 1 Expected Best Bets for 2017 102 Expected Best Bets for 2017 02 Chapter 2 Capital Markets 104 Interviewees 1 2 The Debt Sector 72 The Equity Sector 33 Summary 43 Chapter 3 Markets to Watch 43 2017 Market Rankings 43 Market Summaries 1 7 Chapter 4 Property Type Outlook 2 7 Industrial 74 Apartments 67 Single-Family Homes 77 Hotels 79 Office 81 Retail 38 Niche Sectors 85 Summary Emerging Trends in Real Estate® 2017 i Editorial Leadership Team Emerging Trends Chairs PwC Advisers and Contributing Researchers Mitchell M. Roschelle, PwC Adam Boutros* Howard Ro Renee Sarria Kathleen B. Carey, Urban Land Institute Aki Dellaportas Ian Gunn* Rich Fournier Alan Chu Ian Nelson Richard Fournier Authors Amy E. Olson Isabelle Morgan Richard Probert* Hugh F. Kelly Amy Shanaman Jacqueline Kinneary Rick Barnay* André Voshart* James MacKenzie Rick Munn Alan C. Billingsley Andrew Alperstein James Oswald Rob Sciaudone Andrew Warren Andrew Popert* Jamie Rich Roberto D’abate* Anita Kramer Angelo Talamayan* Janelle Waters Ron Bidulka* Annie Labbé* Janice McDonald* Ross Sinclair* Senior Advisers Armando Pinedo* Jasen Kwong* Ryan Ciccarone Bill Kropp Jason Pagliaro* Ryan Dumais Christopher J. Potter, PwC, Canada Bill Staffieri Jeff Kiley Sabrina Li Miriam Gurza, PwC, Canada Blake Evans Jenna Liou Sam Melehani Frank Magliocco, PwC, Canada Braiden Goodchild* Jeremy Lewis Samuel Hadley Brett Matzek Jillian Michaels* Scott Berman Contributors Brian J. Robertson Jim Oswald Scott Tornberg Brian Keida John Bunting* Sean Hiebert* Sarene Marshall, Urban Land Institute Brian Nerney Jonathan Sessa Serge Gattesco* Stockton Williams, Urban Land Institute Bud Thomas Joseph Pitsor Seth Kemper Carlie Persson* Joseph Schechter Seth Promisel ULI Editorial and Production Staff Carlo Bruno Julia Powell Shareen Yew James A. Mulligan, Senior Editor Carol Devenney* Katie Braha* Simon Dutil* Charles Campany Keith Durand Stan Oldoerp David James Rose, Managing Editor/Manuscript Editor Chase Evans Ken Griffin* Stephan Gianoplus Betsy VanBuskirk, Creative Director Chris Bailey Kevin Fossee Steve Baker Anne Morgan, Cover Design Chris Dietrick Kevin Nishioka Steve Tyler Chris Potter* Kristen Conner Steve Walker Deanna Pineda, Muse Advertising Design, Designer Chris Vangou* Kristy Romo Steven Weisenburger Craig Chapman, Senior Director of Publishing Operations Christina Howton* Kyle Kelly Susan Farina* Eva Su, Director, Capital Markets Christine Lam* Laura Daniels* Susan Smith Emily Vaughan, Manager, District Councils Christopher Gerra Laura Hildebrand* Tim Bodner Christopher Mill Leah Waldrum Tim Conlon Andrew Wahlgren, Intern, Capital Markets Christopher Nicholaou Lee Overstreet Tori Lambert Court Maton Lee-Anne Kovacs* Tracy Howard Courtney Sargent Logan Redlin Tressa Teranishi* Dan Boyce Lori-Ann Beausoleil* Trevor Toombs* Daniel D’Archivio* Lorilynn Monty Wade Yacker Daniel Genter Lou DeFalco Warren Marr Danielle Sercu Luiza Carneiro William Hux Emerging Trends in Real Estate® is a trademark of PwC and is regis- Dave Baranick Marcel Sow William Keating tered in the United States and other countries. All rights reserved. David Baldwin Maria Aiello* Yousuf Abbasi David Baranick Marshall Yellin Zachary Broujos At PwC, our purpose is to build trust in society and solve important David Leavitt Martin Schreiber Zoe Funk problems. We’re a network of firms in 157 countries with more than David Seaman Mary Wilson-Smith* 208,000 people who are committed to delivering quality in assurance, David Voss Matthew Berkowitz Donald Flinn* Matthew Manza *Canada-based. advisory, and tax services. Find out more and tell us what matters to Douglas Struckman Michael Alicastro you by visiting us at www.pwc.com. Dwayne MacKay* Michael Anthony E. Robert Young Michael Elger © 2016 PwC. All rights reserved. PwC refers to the PwC network and/ Elliot Kung Michael Shields* or one or more of its member firms, each of which is a separate legal Emily Pillars Miranda Hardy* entity. Please see www.pwc.com/structure for further details. Eric Andrew* Miranda Tse Eric St-Amour* Miriam Gurza* © October 2016 by PwC and the Urban Land Institute. Erika Ryback Mori Contreras Printed in the United States of America. All rights reserved. No part of Ernest Hudson* Nadia King* Eugene M. Chan Nadja Ibrahim* this book may be reproduced in any form or by any means, electronic Frank Magliocco* Naveli Thomas* or mechanical, including photocopying and recording, or by any infor- Fred Cassano* Nicholas Mitchell mation storage and retrieval system, without written permission of the Frederic Lepage* Nick Ethier* publisher. Gimena de Buen Paz* Oliver Reichel Gloria Park Patrick Groome Recommended bibliographic listing: Gordon Matheson* Peter Wilkins ® Haley Anderson Rachel Klein PwC and the Urban Land Institute: Emerging Trends in Real Estate Heather Drysdale* Rahim Lallani* 2017. Washington, D.C.: PwC and the Urban Land Institute, 2016. Heather Lashway Rajen Shah* Hillary Boulard* Raynald Lafrance* ISBN: 978-0-87420-391-2 ii Emerging Trends in Real Estate® 2017 Notice to Readers Emerging Trends in Real Estate® is a trends and forecast publication now in its 38th edition, and is one of the most highly regarded and widely read forecast reports in the real estate industry. Emerging Trends in Real Estate® 2017, 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® 2017 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 500 individuals and survey responses were received from more than 1,500 individuals, whose company affiliations are broken down below. Private property owner or developer 31.1% Real estate advisory or service firm 27.9% Investment manager/adviser 6.7% Homebuilder or residential land developer 6.6% Bank lender 4.9% Equity REIT or publicly listed real estate property company 4.8% Institutional equity investor 4.6% Private REIT or nontraded real estate property company 2.1% Institutional lender 1.2% Real estate debt investor 0.6% Securitized lender 0.3% Mortgage REIT 0.1% Other entity 9.2% 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 sharing valuable time and expertise. Without the involvement of these many individuals, this report would not have been possible. Emerging Trends in Real Estate® 2017 1 2 Emerging Trends in Real Estate® 2017 Chapter 1: Playing for Advantage, Guarding the Flank Playing for Advantage, Guarding the Flank “Big assets, big cities, big capital, and big competition. The U.S. is more in favor than the rest of the world right now.” The game of chess is not a game of chance, but requires Beginners may often extend themselves swiftly and aggres- mastery of a complex set of skills that are both art and science. sively into the fray, seeking quick advantage but overlooking the A player needs to be alert, equally aware of the strengths and impact of countermeasures that are obvious to more experi- weaknesses of his own position and that of his opponent. A enced players. Strategic thinkers see beyond the “next move” plan is needed, most assuredly. The number of possible games and anticipate the development of a series of moves that, taken that can develop, however, exceeds the number of atoms in the together, create a more powerful control of the board. universe. Hence, flexibility within the plan is critical. Each move has a short-term impact and is also a step in positioning for a As we consider the emerging trends going into 2017, we try to victorious endgame. look two or three moves ahead in the fascinating and competi- tive field that is the real estate industry. And, since no single Like chess, the real estate playing field requires an artful mix of move can be considered in isolation, it will be important to see skills, tactics, and strategies.
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