The Urban Land Institute and PwC recently provided their annual Emerging Trends in Real Estate report. In the report, the authors highlight three main trends to follow for 2019 and into the future:
Most real estate investors are in “risk-off” mode this year; however, they are not exiting the market, they are seeking safer income generating assets rather than riskier development deals. Although most investors expect a slowdown in the coming year, they do not foresee a major collapse in pricing due to several factors: the continuation of low interest rate policies, large amounts of capital reserves (“dry powder”), lower leverage in the overall real estate market, and lower amounts of supply in the pipeline (less over building this time around).
Large amounts of foreign capital continue to make their way to the US market. Even with a slowdown from Chinese investors, many other Asian and European countries have increased their US investment due to instability in other markets. The US continues to be an attractive market for safe investments when compared to other options outside the US.
The consumers of real-estate assets (the renter, the shopper, the office worker, the hotel guest) are driving a major shift in the way real estate assets are used. Real estate is no longer a business of providing a vanilla box, it is shifting to an experienced-based business model. This requires massive changes to the traditional real estate business model. It is forcing operators to invest in brands, operating businesses, and providing a whole new type of real estate product to the consumer. Investors and operators will have to adapt to these new demands or face obsolescence.
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Cision PR Newswire provided their take on the trends in the ULI/PWC report, including these three points:
Properties are facing accelerated obsolescence. Changes in technology, evolving social norms, and the risks of climate change are all impacting how quickly real estate assets require re-investment. Operators need to check how they are investing in capital expenditures to upgrade their systems, understand their tenants’ needs, and to create more sustainable real estate products.
A new working class comes with new housing needs. Millennials are joining the workforce and their housing needs aren’t being met. Millennials are focusing on more experiences and flexible working and living arrangements. Operators need to reevaluate how to accommodate these needs. Operates may want to consider offering communal events with their tenants, coworking spaces within their units, and flexible lease offerings. These options may attract millennial tenants and have a powerful return on investment.
The attractiveness of alternative real estate assets is growing. Housing options no longer consist only of single family and multifamily assets. There are new emerging asset classes such as student housing and residential assisted living. These asset classes are emerging due to a change in housing fundamentals and are likely to thrive because they are resolving a specific need for their community and tenants. Real estate investors need to continue to be aware of other emerging asset classes that target specific housing niches and generate returns for investors.
Is your portfolio ready for these trends? If not, contact us and we will be happy to discuss a plan to face these trends in 2019 and beyond!