Emerging Trends in Real Estate®

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Emerging Trends in Real Estate® JUSTIN MERKOVICH, BKV GROUP Emerging Trends in Real Estate® United States and Canada 2015 Emerging Trends in Real Estate® 2015 A publication from: Emerging Trends in Real Estate® 2015 Contents 2 Chapter 1 Sustaining Momentum but Taking Nothing for Granted 4 The 18-Hour City Comes of Age 4 The Changing Age Game 6 Labor Markets Are Trending toward a Tipping Point 9 Real Estate’s Love/Hate Relationship with Technology Intensifies 9 Event Risk Is Here to Stay 11 A Darwinian Market Keeps the Squeeze on Companies 12 A New 900-Pound Gorilla Swings into View 13 Infrastructure: Time for the United States to Get Serious? 14 Housing Steps Off the Roller Coaster 15 Keeping an Eye on the Bubble—Emerging Concerns 17 Expected Best Bets 20 Chapter 2 Real Estate Capital Flows 21 Looking across the Debt Sector 24 Meanwhile, on the Equity Side . 30 The View from the Bridge 31 Chapter 3 Markets to Watch 31 2015 Market Rankings 33 Capital Flow by Market 34 Continuing Urbanization Trend 35 Generational Impacts: The Potential for Change 36 Technology and Energy Leading the Recovery 36 Jobs Go Where It Costs Less 38 The Top 20 Markets 47 Perspective on Regions 60 Chapter 4 Property Type Outlook 60 Industrial 64 Hotels 65 Apartments 67 Retail 70 Offices 73 Housing 76 Chapter 5 Emerging Trends in Canada 77 The Business Environment 80 Emerging Trends in Canadian Real Estate 84 Capital Markets 87 Opportunities by Property Type 90 Markets to Watch in 2015 96 Local Market Opinion 96 Expected Best Bets in 2015 97 A Summary of Canadian Real Estate Trends 99 Interviewees Emerging Trends in Real Estate® 2015 i Editorial Leadership Team Emerging Trends Chairs PwC Advisers and Contributing Researchers Mitchell M. Roschelle, PwC Adam Boutros* Jay Schwartz Kathleen B. Carey, Urban Land Institute Adam S. Feuerstein Jay Weinberg Adriane Bookwalter Jeff Kiley Authors Aki Dellaportas Jeffrey Nasser Hugh F. Kelly Allen Baker* Jerry Kavanagh* Andrew Warren, PwC Allen Topaloglu* Jim D’Amore Alysha Brady John Amman Principal Researchers and Advisers Amanda Gruskos Julia Powell Stephen Blank, Urban Land Institute Amy E. Olson Ken Griffin* Anita Kramer, Urban Land Institute Amy Perron* Kent Goetjen Andrew Alperstein Kevin Nishioka Senior Advisers Andrew Popert* Kourosh HoorAzar Christopher J. Potter, PwC, Canada Andrew Stansfield Kristen Anderson Miriam Gurza, PwC, Canada Andrew Warren Kristen Conner Susan M. Smith, PwC Brad Wood Laura Daniels* Brett Matzek Lori-Ann Beausoleil* ULI Editorial and Production Staff Bud Thomas Louis DeFalco James A. Mulligan, Senior Editor Carlo Bruno Matt Lopez David James Rose, Managing Editor/Manuscript Editor Chris Dietrick Mel Fowle Chris Mill Mike Herman Betsy VanBuskirk, Creative Director Chris Vangou* Miriam Gurza* Anne Morgan, Cover Design Christina Howton* Nadja Ibrahim* Deanna Pineda, Muse Advertising Design, Designer Christine Hill Nicholas Mitchell Craig Chapman, Senior Director of Publishing Operations Christine Lattanzio Philippe Thieren* Xiaoning Mao, Project Intern Christopher J. Potter* Rachel Klein Cynthia Chandler Rajveer Hundal* Daniel Cadoret* Raymond J. Beier Daniel D’Archivio* Renee Sarria David Baldwin Rich Fournier David Baranick Rick Barnay* David Glicksman* Rob Sciaudone David Khan* Ron Bidulka* ® Emerging Trends in Real Estate is a trademark of PwC and is regis- David M. Voss Ron Walsh* tered in the United States and other countries. All rights reserved. David Ross Russell Sugar* PwC firms help organizations and individuals create the value they’re David Seaman Ryan Dumais looking for. We’re a network of firms in 158 countries with close to David Yee* Scott Tornberg 169,000 people who are committed to delivering quality in assurance, Deborah Dumoulin* Scott Williamson tax, and advisory services. Tell us what matters to you and find out Dennis Goginsky Sean Hiebert* more by visiting us at www.pwc.com. Dillon Long Sergio Lozano Dominique Fortier* Stacie Benes Learn more about PwC by following us online: @PwC_LLP, YouTube, Doug Purdie* Stephan Gianoplus LinkedIn, Facebook, and Google+. Douglas B. Struckman Stephen Cairns Emily Pillars Steve Baker © 2014 PricewaterhouseCoopers LLP, a Delaware limited liability part- Eric Andrew* Steve Hollinger* nership. All rights reserved. PwC refers to the U.S. member firm, and Eric St-Amour* Steve Tyler may sometimes refer to the PwC network. Each member firm is a sepa- Ernie Hudson* Steven Weisenburger rate legal entity. Please see www.pwc.com/structure for further details. Eugene Chan Susan Smith © October 2014 by PwC and the Urban Land Institute. Frank Magliocco* Tim Conlon Franklin Yanofsky Tori H. Lambert Printed in the United States of America. All rights reserved. No part of Fred Cassano* Warren Marr this book may be reproduced in any form or by any means, electronic Ian Gunn* William Hux or mechanical, including photocopying and recording, or by any infor- Ian T. Nelson William Keating mation storage and retrieval system, without written permission of the Jack Keating publisher. Jackie Yau* Recommended bibliographic listing: Jacqueline Kinneary *Canada-based. James Oswald PwC and the Urban Land Institute: Emerging Trends in Real Estate® Jane Ma* www.pwc.com/structure 2015. Washington, D.C.: PwC and the Urban Land Institute, 2014. Jasen Kwong* ISBN: 978-0-87420-355-7 Jason Chessler ii Emerging Trends in Real Estate® 2015 Notice to Readers Emerging Trends in Real Estate® is a trends and forecast publication now in its 36th edition, and is one of the most highly regarded and widely read forecast reports in the real estate industry. Emerging Trends in Real Estate® 2015, 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® 2015 reflects the views of more than 1,400 individu- als 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 companies, lenders, brokers, advisers, and consultants. ULI and PwC researchers personally interviewed more than 391 individuals, and survey responses were received from 1,055 individuals, whose company affiliations are broken down below. Private property company investor, or developer 29.3% Real estate service firm 20.8% Institutional/equity investor or investment manager 13.3% Commercial/institutional real estate developer 9.2% Bank, lender, or securitized lender 8.7% Publicly listed property company or equity REIT 6.1% Private REIT or nontraded property company 2.9% Homebuilder or residential land developer 7.0% Mortgage REIT or real estate debt investor 1.2% Other 1.5% Throughout the publication, the views of interviewees and/or survey respondents have been presented as direct quotations from the participant without attribution to any par- ticular 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 interview- ees 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. PricewaterhouseCoopers has exercised reasonable care in the collecting, process- ing, and reporting of this information but has not independently verified, validated, or audited the data to verify the accuracy or completeness of the information. PricewaterhouseCoopers gives no express or implied warranties, including but not limited to any warranties of merchantability or fitness for a particular purpose or use and shall not be liable to any entity or person using this document, or have any liability with respect to this document. 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® 2015 1 2 Emerging Trends in Real Estate® 2015 Chapter 1: Sustaining Momentum but Taking Nothing for Granted Sustaining Momentum but Taking Nothing for Granted “It is possible to stretch for opportunities—you just have to be aware of how much runway you have left in the current cycle.” Another year, another look at the Emerging Trends expected to Exhibit 1-2 Emerging Trends Barometer 2015 affect real estate in the coming year and beyond. It’s a healthy discipline for our industry, taking a periodic look ahead to evalu- ate the contenders and pretenders among the forces shaping excellent the real estate business. By survey, by interview, by a review of Sell data, and by a thoughtful sifting through of fact and opinion to good Hold arrive at considered judgments, nothing is taken for granted. Buy Each prospective “trend” has to prove itself to a cross section fair of the industry if it is to make the list. For 2015, we propose ten top trends for your attention. What are poor their salient characteristics? abysmal Since real estate’s value is a function of how it serves its users— workers, consumers, businesses, travelers, homeowners, and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Emerging Trends in Real Estate surveys. Note: Based on U.S. respondents only. Exhibit 1-1 U.S. Real Estate Returns and Economic Growth apartment renters—we look to human elements for signs of NAREIT GDP 5% trends. Demographics, labor force characteristics, location 40% NCREIF NAREIT total preferences, and motivations discerned by observed behaviors 30% expected return 8.0 3% and the interpretation of real estate professionals are among the 20% most reliable indicators of trends.
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