GREGG GALBRAITH, RED STUDIO GREGG GALBRAITH, Emerging Trends in Real Estate® United States and Canada 2016 2016_EmergTrends US_C1_4_F.indd 3 9/16/15 8:10 PM Emerging Trends in Real Estate® 2016 A publication from: 2016_EmergTrends US_C1_4_F.indd 4 9/16/15 8:10 PM Emerging Trends in Real Estate® 2016 Contents 2 Chapter 1 Coordinating Offense and Defense in 2016 5 18-Hour Cities 2.0 6 Next Stop: the Suburbs . What Is a Suburb? 9 Offices: Barometer of Change 10 A Housing Option for Everyone 12 Parking for Change 13 Climate Change and Real Estate 15 Infrastructure: Network It! Brand It! 16 Food Is Getting Bigger and Closer 16 Consolidation Breeds Specialization 17 We Raised the Capital; Now, What Do We Do with It? 18 Return of the Human Touch 19 Issues to Watch 20 Expected Best Bets for 2016 22 Chapter 2 Capital Markets 23 The Debt Sector 28 The Equity Sector 35 Summing It Up 36 Chapter 3 Markets to Watch 36 2016 Market Rankings 38 Market Trends 39 The Top 20 Markets 49 Perspectives on Regions 60 Chapter 4 Property Type Outlook 61 Industrial 64 Apartments 67 Office 70 Hotels 71 Retail 75 Housing 77 Chapter 5 Emerging Trends in Canada: Changing Opportunities 78 Emerging Trends in Canadian Real Estate 85 Markets to Watch in 2016 90 Property Type Outlook 94 Expected Best Bets for 2016 95 Interviewees Emerging Trends in Real Estate® 2016 i Editorial Leadership Team Emerging Trends Chairs PwC Advisers and Contributing Researchers Mitchell M. Roschelle, PwC Adam Boutros* Julia Powell Kathleen B. Carey, Urban Land Institute Aki Dellaportas Kelly Nobis Alex Tanchez* Kelsey Edelen Principal Advisers and Contributing Authors Alexander P. Stimpfl Kristen Conner Allen Baker* Kristen D. Naughton Andrew Warren, PwC Amy Brohman* Kristianne M. Marchart Anita Kramer, Urban Land Institute Amy E. Olson LaRon E. York Andrew Alperstein Laura Daniels* Author Andrew Paterson* Lawrence A. Goodfield Andrew Popert* Leah Waldrum Hugh F. Kelly Andrew Stansfield Leandra M. Charsky Annie Labbé* Lisa Guerrero Senior Advisers Brian J. O’Donnell Lona Mathis Christopher J. Potter, PwC, Canada Brian T. Nerney Lori-Ann Beausoleil* Brion L. Sharpe Mark Williams Miriam Gurza, PwC, Canada Bud Thomas Martin J. Schreiber Frank Magliocco, PwC, Canada Carlo Bruno Martina Scheuer Charles P. Alford Marvin A. Thomas ULI Contributing Researchers Chase C. Evans Mary Wilson-Smith* Chris Potter* Mathilde C. Hauswirth Sarene Marshall Chris Vangou* Matthew Berkowitz Maureen McAvey Christina Howton* Maxime Lessard* Dean Schwanke Christine Lattanzio Meghan O’Brien Christopher A. Mill Michael Anthony Stockton Williams Christopher L. Nicholaou Michael Shields* Constance Chow* Michael T. Grillo ULI Editorial and Production Staff Courtney S. McNeil Mike Herman James A. Mulligan, Senior Editor Dan Crowley Miriam Gurza* Daniel J. O’Neill Nadia King* David James Rose, Managing Editor/Manuscript Editor Daniel D’Archivio* Nadja Ibrahim* Betsy Van Buskirk, Creative Director David Baldwin Naveli Thomas* David Baranick Neal P. Kopec Anne Morgan, Cover Design David Khan* Nicholas Mitchell Deanna Pineda, Muse Advertising Design, Designer David M. Voss Nick Ethier* Craig Chapman, Senior Director of Publishing Operations David Seaman Nicole M. Stroud David Yee* Noah Weichselbaum Marc Andrew Curtin, Project Assistant Deborah Dumoulin* Oliver Reichel Rebecca Lassman, Project Intern Dominique Fortier* Philippe Thieren* Donald Flinn* Rajen Shah* Doug Purdie* Rajveer Hundal* Douglas B. Struckman Renee Sarria Dwayne MacKay* Richard Fournier Edward Sheeran Rick Barnay* ® Eli Rabin Rob Christmas* Emerging Trends in Real Estate is a trademark of PwC and is regis- Elliot Kung Rob Sciaudone tered in the United States and other countries. All rights reserved. Emily Pillars Ron Bidulka* Eric Andrew* Ron Walsh* PwC US helps organizations and individuals create the value they’re Eric St-Amour* Rosanna Musto* looking for. We’re a member of the PwC network of firms, which has Ernest Hudson* Ross Sinclair* firms in 157 countries with more than 195,000 people. We’re committed Eugene Chan Ryan Dumais to delivering quality in assurance, tax, and advisory services. Find out Frank Magliocco* Ryan Thomas* Fred Cassano* Sean Hiebert* more and tell us what matters to you by visiting us at www.pwc.com/US. Gabrielle Mendiola* Seth E. Kemper Haley M. Anderson Shannon M. Comolli © 2015 PwC. All rights reserved. PwC refers to the U.S. member firm or Heather M. Lashway Shareen Yew one of its subsidiaries or affiliates, and may sometimes refer to the PwC Howard Ng* Stephan Gianoplus network. Each member firm is a separate legal entity. Please see www. Howard Quon* Stephen W. Crisafulli pwc.com/structure for further details. Ian Gunn* Steve Tyler Isabelle Morgan Steven Weisenberger © September 2015 by PwC and the Urban Land Institute. Jackie Kelly Susan M. Smith Jacqueline Kinneary Tim Bodner Printed in the United States of America. All rights reserved. No part of Jaime D. Phillips Timothy C. Conlon this book may be reproduced in any form or by any means, electronic James Oswald Tracy L. Howard Janaki Sekaran Victoria M. Music or mechanical, including photocopying and recording, or by any infor- Janice McDonald* Warren Marr mation storage and retrieval system, without written permission of the Janice Zaloudek Wendi Pope* publisher. Jasen Kwong* Wendy J. Wendeborn Jeff Kiley Wesley Mark* Recommended bibliographic listing: Jill Lising* William Croteau John Gottfried William Hux PwC and the Urban Land Institute: Emerging Trends in Real Estate® John Paul Pressey* William Keating 2016. Washington, D.C.: PwC and the Urban Land Institute, 2015. Joseph H. Schechter Yvens Faustin Joseph R. Fierro ISBN: 978-0-87420-366-0 Joshua Hookkee * Canada-based. ii Emerging Trends in Real Estate® 2016 Notice to Readers Emerging Trends in Real Estate® is a trends and forecast publication now in its 37th edition, and is one of the most highly regarded and widely read forecast reports in the real estate industry. Emerging Trends in Real Estate® 2016, 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® 2016 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 404 individuals and survey responses were received from 1,465 individu- als, whose company affiliations are broken down below. Private property owner or developer 34.3% Real estate services firm 26.5% Institutional/equity investor or investment manager 11.5% Bank, lender, or securitized lender 7.4% Real estate brokerage 6.5% Homebuilder or residential land developer 5.5% Equity REIT or publicly listed real estate property company 3.1% Other entity 2.6% Private REIT or nontraded real estate property company 2.1% Mortgage REIT or real estate debt investor 0.4% 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® 2016 1 2 Emerging Trends in Real Estate® 2016 Chapter 1: Coordinating Offense and Defense in 2016 Coordinating Offense and Defense in 2016 “You can never forget about cycles, but the next 24 months look doggone good for real estate.” Every major college and NFL football team sees its game plan Exhibit 1-2 Emerging Trends Barometer 2016 shaped by its offensive and defensive coordinators, working in concert with the head coach. The coordinators are expected to have both technical and strategic skills, the ability to work excellent under pressure, and the capacity to adjust to rapidly changing Sell conditions. good Hold Buy For the offense, the coordinator is charged with marshalling the fair team’s resources to maximize opportunities and to translate them into points on the road to victory. For the defense, the coordinator is constantly assessing risks, both before and dur- poor ing the game, and countering them. In limiting the competition’s advantages, the defensive coordinator seeks to put his team abysmal in the best position on the field by managing adversity and, 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Emerging Trends in Real Estate 2016 survey. Exhibit 1-1 U.S. Real Estate Returns and Economic Growth Note: Based on U.S. respondents only. NAREIT as much as possible, turning an opponent’s risk taking into an GDP 5% 40% NCREIF NCREIF total expected return opportunity for his own squad. 30% 8.0 3% 20% For real estate, 2016 will see investors, developers, lenders, users, and service firms relying upon intense and sophisticated 10% 1% coordination of both their offensive and defensive game plans. 0% In an ever more competitive environment, with well-capitalized 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016* –1% players crowding the field, disciplined attention to strategy and Index change –10% changeGDP NAREIT total to execution is critical to success.