Emerging Trends in Real Estate® is an annual series of reports published jointly by the ULI Center for Capital Markets and Real Estate and PwC that forecasts trends in real estate development and investment, debt and equity flows, property sectors, and metropolitan areas across three global regions—the United States and Canada; the Asia Pacific region; and Europe. Each report offers the real estate and land use industry a closer look at what to expect in the year ahead, opportunities and risks in the market, and broader economic issues that are likely to inform near-term decision making.
In FY 2016, the Center celebrated the 37th year of publishing Emerging Trends. Each report synthesizes expert opinion and insights from top real estate investment professionals across each region, shared through surveys and personal interviews with ULI and PwC research staff. Below is a summary of the major top trends and influences identified in each regional report for FY 2016:
The United States and Canada: The Ascendance of 18-Hour Cities
Emerging Trends in Real Estate® United States and Canada 2016 identified several important trends shaping development and investment across cities and sector types. The report’s findings were based on more than 1,400 survey responses and interviews with more than 400 investment professionals across the United States and Canada.
Investor confidence in 18-hour, secondary cities was identified as an ongoing movement, continuing a trend that initially surfaced in Emerging Trends 2015. Respondents praised cities such as Charlotte, Nashville, and Austin for their relative affordability, livability, and “manageable environments [that] have a better value proposition,” according to one investor. These cities, as well as Portland, Oregon; Louisville; and Denver, were all listed as top markets to watch, which was a departure from the historical dominance of gateway cities such as New York and Los Angeles.
The report noted other influential trends, including the following: a reconsideration of the suburbs in light of a rising cost of living and home prices within urban markets; interest in office spaces that encourage collaboration; and a demand for greater housing options to meet the needs of an aging population, millennials, and lower- and moderate-income households.
Based on interviews with more than 300 investors across the Asia Pacific region, Emerging Trends in Real Estate® Asia Pacific 2016 provided a snapshot of a region where capital—while abundant—is chasing fewer assets, pushing up prices, and compressing cap rates across the region. It is no wonder that outbound capital flows from Asia to U.S., European, and Canadian markets are strong and getting stronger, investors noted in the report.
Within the region, investors are seeking safe havens in the form of core assets in gateway cities such as Tokyo and Sydney, the top-ranked cities for investment and development. Investors noted Tokyo’s strength in all the real estate fundamentals, the depth and liquidity of the market, and low interest rates. Sydney was commended for its core office properties and innovative redevelopment projects and office-to-residential conversions. The third- and fourth-ranked cities of Melbourne and Osaka were seen as benefiting from sharing characteristics similar to those of their larger counterparts.
The presence of Ho Chi Minh City was the big surprise for 2016, jumping up the rankings to land a spot in the top five markets to watch. Survey participants attributed the city’s performance to improved market access to foreign investors, a stable local currency, and increased real estate lending by banks.
Other major themes identified in the report include the following: the industrial/logistics sector growing as a favorable target for investment due to the growth of online retail; a “roller-coaster” atmosphere in China with sluggish sales activity in the first half of the year due to a general economic slowdown and momentum picking up in the second half; a move up the risk curve by certain investors searching for higher yields; and Japan and China offering the most favorable outcomes for opportunistic funds.
Rather than focusing exclusively on capital markets and city-by-city investment prospects, Emerging Trends in Real Estate® Europe 2016 analyzed the broader forces of disruption sweeping the real estate industry. Advances in technology, long-term demographic trends, rapid urbanization, and increasingly sophisticated and demanding occupiers are all effecting profound, ground-level changes on the real estate industry. These changes are leading investors to focus more on cities and assets rather than on countries, and interest is growing in alternative, operational forms of real estate such as health care, hotels, and student housing, the report noted.
“Some of the industry’s biggest challenges are related less to brick-and-mortar concerns, and more to service and the implications this has for traditional business models or real estate operators,” said Lisette van Doorn, ULI Europe chief executive. Based on interviews with and surveys from 500 investment professionals, the report noted the following important trends: more than 75 percent of respondents consider development as a primary tool for value creation, and the majority consider the creation of “places” a critical factor in real estate performance.
Berlin and Hamburg captured the top spots in Emerging Trends 2016’s markets to watch, with the former garnering praise for its creative and technology sectors and diverse, youthful employment base and the latter also boasting a diverse economy and low office vacancy rates. Dublin, Madrid, and Copenhagen captured the remaining spots among the top five markets to watch.