Emerging Trends in Real Estate – Part I – “Are We Home Yet?”

Key Highlights

Emerging Trends in Real Estate®report, a joint effort by PwC and Urban Land Institute, provides outlook on real estate investment and development trends

• We are highlighting 3 trends in this multi-part series: Part I “Are We Home Yet?”, Part II “The Affordability Crisis”, and Part III “Markets to Watch”

Part I – “Are We Home Yet?”

Real Estate in Early Innings of Being “In the Game”

The challenge for the Urban Land Institute (ULI) and PwC in this 42^nd edition of the Emerging Trends in Real Estate®report has been to “discern the trends that COVID-19 has instigated and their long-term potential…”

Many with the ULI PwC believe that real estate is in the early innings of a disease as deadly and as little known as COVID.  That said, real estate in 2021 has many important issues with which to content including job and income growth, capital availability, interest rates, global economic growth, housing costs and availability, state and local budget shortfalls, overall construction costs and tenant leasing and retention costs.

COVID-19’s Impact on Key Trends

Key trends that have been accelerated by COVID include some of the following: work from home (WFH), move to Sun Belt states, suburban migration, municipal/state fiscal issues, safety/health concerns in buildings, affordable housing crisis, racial equity concerns, state and federal deficits and bikes and scooters.

Trends that have been, for now, stopped/slowed by COVID include some of the following: the appeal of central business districts (CBD) or gateway metros, in-person meetings/conferences, business/leisure travel/tourism, use of mass transit, apartment amenity wars, student housing, live entertainment and global supply chains.

Telework

Nearly 95% of all involved in this report believe that now and into the future, more companies will choose to allow and enable remote working at least part of the time.  Simultaneously, more than 62% believe that office tenants will require more square feet/worker than pre-pandemic levels

Great American Move

COVID has inspired American people and businesses to move to different geographies, from denser cities to suburbs and rural areas, from apartments to homes and, for some, back “home” to live with family members in multi-family housing.

Regions having the best potential job growth and affordability have been and will continue to prevail

In-migration markets have included Boise ID, Salt Lake City UT, Phoenix AZ, San Antonio TX, Houston TX, Austin TS, Dallas TX, Indianapolis IN, Nashville TN, Atlanta GA, Charlotte NC, Raleigh NC, Myrtle Beach VA, Charleston TN, and the Florida cities of Jackson, Orlando, Tampa, Sarasota and Fort Myers.

Out-migration markets have included Boston, MA, New York City NY, Philadelphia PA, Washington DC, Baltimore MD, Minneapolis MN, Chicago IL, Denver CO, Seattle WA, Portland OR, Las Vegas NV and the California cities of San Francisco, Sacramento (to a lesser extent), San Jose, Oakland, Riverside, Los Angeles, San Bernardino, Orange County and San Diego.

John Burns Real Estate Consulting (JBREC) identifies “favorite” boomtowns as being Charlotte, Denver, Dallas, Nashville, Portland and Seattle.  U-Haul noted that its premiums were highest in the affordable west (Phoenix, Salt Lake City, Las Vegas, Boise and Portland) due to surges in California buyers

Demographic Shifts

Between 2020 and 2030 population shifts by age look like this, according to the ULI and PwC:

• Young professionals (ages 20-29) will decline by -0.4M – prefer a more urban lifestyle
• Population in family formation years (aged 30-49) expected to grow by +8.4M – prefer more suburban lifestyle
• Empty nester population to shrink by -4.03M – portion prefer urban living
• Retiree-age groups expected to soar by +17.1M – prefer suburban lifestyle

Re-Inventing Cities

According to the ULI and PwC, the on-going, decades-long urban renaissance has most definitely influenced both large and small cities.  The ULI believes that this urban renaissance will likely slow over the next 5 – 10 years in favor of lower density suburbs and larger homes.  Millennials will form the bulk of this demographic shift (see above).

Cities never have stood still nor will they despite having depleted tax bases.  Already many cities are seeing their restaurants move outside to sidewalks and street spaces.  And, with public transportation down, cities are creating new pedestrian and bike/scooter “lanes” as well as better and multi-use open spaces.

Despite urban growth being slower going over the next 5 – 10 years, very few are predicting the death of central cities.  This 42^ndedition of Emerging Trends in Real Estate says that “…gateway markets such as Boston, Los Angeles, New York City, San Francisco and Washington DC will remain the financial, cultural, technology and government capital of the United States and even the world.  Smaller and midsized downtowns such as Des Moines, Knoxville, and Portland Maine will continue to develop into lively, diverse and affordable destinations…”

Thanks to Urban Land Institute and PwC.

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