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 64 Chapter 4 Property Type Outlook the Flank 65 Industrial 4 Context: A Kinder, Gentler Real Estate Cycle? 67 Apartments 5 Optionality 69 Single-Family Homes 6 Transformation through Location Choice 70 Hotels 7 Climate Change and Real Estate 72 Office 8 Recognizing the Role of the Small 74 Retail Entrepreneurial Developer 76 Niche Sectors 9 Labor Scarcity in Construction Costs 78 Summary 11 Housing Affordability: Local Governments Step Up 79 Chapter 5 Emerging Trends in Canadian 13 Gaining Entry beyond the Velvet Rope Real Estate 13 The State of the Suburbs: Residential Development 79 More Than Mixed Use, It’s about Building Opportunities and Challenges Communities 14 The Connectedness of Cities 80 Affordability on the Decline 15 Ready for Augmented Reality? 82 Renting for the Long Term 16 Women, Immigrants, Younger and Older Workers, 83 Technology Disruptors Hold a Competitive Retirees: Reshaping Community Building for the Advantage Next Ten Years 83 Global Uncertainties Weigh on the Mind 17 Blockchain for 21st-Century Real Estate 83 Ongoing Oil and Gas Woes 18 Expected Best Bets 85 Waiting for Deals 85 Economic Outlook 20 Chapter 2 Capital Markets 86 Property Type Outlook 21 The Debt Sector 89 Markets to Watch in 2017 27 The Equity Sector 94 Expected Best Bets for 2017 33 Summary 95 Interviewees 34 Chapter 3 Markets to Watch 34 2017 Market Rankings 34 Market Summaries Emerging Trends in Real Estate® 2017 i Editorial Leadership Team Emerging Trends Chairs PwC Advisers and Contributing Researchers Mitchell M. Roschelle, PwC Adam Boutros* Ian Gunn* Rich Fournier Kathleen B. Carey, Urban Land Institute Aki Dellaportas Ian Nelson Richard Fournier Alan Chu Isabelle Morgan Richard Probert* Authors Amy E. Olson Jacqueline Kinneary Rick Barnay* Hugh F. Kelly Amy Shanaman James MacKenzie Rick Munn André Voshart* James Oswald Rob Sciaudone Alan C. Billingsley Andrew Alperstein Jamie Rich Roberto D’abate* Andrew Warren Andrew Popert* Janelle Waters Ron Bidulka* Anita Kramer Angelo Talamayan* Janice McDonald* Ross Sinclair* Annie Labbé* Jasen Kwong* Ryan Ciccarone Senior Advisers Armando Pinedo* Jason Pagliaro* Ryan Dumais Bill Kropp Jeff Kiley Sabrina Li Christopher J. Potter, PwC, Canada Bill Staffieri Jenna Liou Sam Melehani Miriam Gurza, PwC, Canada Blake Evans Jeremy Lewis Samuel Hadley Braiden Goodchild* Jillian Michaels* Scott Berman Contributors Brett Matzek Jim Oswald Scott Tornberg Sarene Marshall, Urban Land Institute Brian J. Robertson John Bunting* Sean Hiebert* Brian Keida Jonathan Sessa Serge Gattesco* Stockton Williams, Urban Land Institute Brian Nerney Joseph Pitsor Seth Kemper Bud Thomas Joseph Schechter Seth Promisel ULI Editorial and Production Staff Carlie Persson* Julia Powell Shareen Yew James A. Mulligan, Senior Editor Carlo Bruno Katie Braha* Simon Dutil* David James Rose, Managing Editor/Manuscript Editor Carol Devenney* Keith Durand Stan Oldoerp Charles Campany Ken Griffin* Stephan Gianoplus Betsy VanBuskirk, Creative Director Chase Evans Kevin Fossee Steve Baker Anne Morgan, Cover Design Chris Bailey Kevin Nishioka Steve Tyler Deanna Pineda, Muse Advertising Design, Designer Chris Dietrick Kristen Conner Steve Walker Chris Potter* Kristy Romo Steven Weisenburger Craig Chapman, Senior Director of Publishing Operations Chris Vangou* Kyle Kelly Susan Farina* Eva Su, Director, Capital Markets Christina Howton* Laura Daniels* Susan Smith Emily Vaughan, Manager, District Councils Christine Lam* Laura Hildebrand* Tim Bodner Andrew Wahlgren, Intern, Capital Markets Christopher Gerra Leah Waldrum Tim Conlon Christopher Mill Lee Overstreet Tori Lambert Christopher Nicholaou Lee-Anne Kovacs* Tracy Howard Court Maton Logan Redlin Tressa Teranishi* Courtney Sargent Lori-Ann Beausoleil* Trevor Toombs* Dan Boyce Lorilynn Monty Wade Yacker Daniel D’Archivio* Lou DeFalco Warren Marr Daniel Genter Luiza Carneiro William Hux Danielle Sercu Marcel Sow William Keating Emerging Trends in Real Estate® is a trademark of PwC and is regis- Dave Baranick Maria Aiello* Yousuf Abbasi tered in the United States and other countries. All rights reserved. David Baldwin Marshall Yellin Zachary Broujos David Baranick Martin Schreiber Zoe Funk At PwC, our purpose is to build trust in society and solve important David Leavitt Mary Wilson-Smith* problems. We’re a network of firms in 157 countries with more than David Seaman Matthew Berkowitz 208,000 people who are committed to delivering quality in assurance, David Voss Matthew Manza *Canada-based. Donald Flinn* Michael Alicastro advisory, and tax services. Find out more and tell us what matters to Douglas Struckman Michael Anthony you by visiting us at www.pwc.com. E. Robert Young Michael Elger © 2016 PwC. All rights reserved. PwC refers to the PwC network and/ Elliot Kung Michael Shields* Emily Pillars Miranda Hardy* or one or more of its member firms, each of which is a separate legal Eric Andrew* Miranda Tse entity. Please see www.pwc.com/structure for further details. Eric St-Amour* Miriam Gurza* Erika Ryback Mori Contreras © October 2016 by PwC and the Urban Land Institute. Ernest Hudson* Nadia King* Printed in the United States of America. All rights reserved. No part of Eugene M. Chan Nadja Ibrahim* Frank Magliocco* Naveli Thomas* this book may be reproduced in any form or by any means, electronic Fred Cassano* Nicholas Mitchell or mechanical, including photocopying and recording, or by any infor- Frederic Lepage* Nick Ethier* mation storage and retrieval system, without written permission of the Gimena de Buen Paz* Oliver Reichel publisher. Gloria Park Patrick Groome Gordon Matheson* Peter Wilkins Recommended bibliographic listing: Haley Anderson Rachel Klein ® Heather Drysdale* Rahim Lallani* PwC and the Urban Land Institute: Emerging Trends in Real Estate Heather Lashway Rajen Shah* 2017. Washington, D.C.: PwC and the Urban Land Institute, 2016. Hillary Boulard* Raynald Lafrance* Howard Ro Renee Sarria 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