Emerging Trends
in Real Estate®
United States and Canada 2017
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Emerging Trends in Real Estate® 2017
A publication from:
i
Emerging Trends in Real Estate® 2017
Contents
3
Chapter 1 Playing for Advantage, Guarding
the Flank
4 Context: A Kinder, Gentler Real Estate Cycle?
5 Optionality
6
Transformation through Location Choice
8
Recognizing the Role of the Small
Entrepreneurial Developer
9
Labor Scarcity in Construction Costs
11
Housing Affordability: Local Governments
Step Up
13 Gaining Entry beyond the Velvet Rope
14
The Connectedness of Cities
15 Ready for Augmented Reality?
17
Blockchain for 21st-Century Real Estate
18
Expected Best Bets for 2017
20 Chapter 2 Capital Markets
21
The Debt Sector
27
The Equity Sector
33
Summary
34 Chapter 3 Markets to Watch
34
2017 Market Rankings
34
Market Summaries
71 Chapter 4 Property Type Outlook
72
Industrial
74
Apartments
76
Single-Family Homes
77 Hotels
79 Office
81 Retail
83 Niche Sectors
85
Summary
86
Chapter 5 Emerging Trends in Canadian
Real Estate
86
More Than Mixed Use, It’s about Building
Communities
87
Affordability on the Decline
89 Renting for the Long Term
90
Technology Disruptors Hold a Competitive
Advantage
90 Global Uncertainties Weigh on the Mind
90 Ongoing Oil and Gas Woes
92 Waiting for Deals
92 Economic Outlook
93 Property Type Outlook
96 Markets to Watch in 2017
102
Expected Best Bets for 2017
104
Interviewees
Emerging Trends
in Real Estate®
2017
ii Emerging Trends in Real Estate® 2017
Editorial Leadership Team
Adam Boutros*
Aki Dellaportas
Alan Chu
Amy E. Olson
Amy Shanaman
André Voshart*
Andrew Alperstein
Andrew Popert*
Angelo Talamayan*
Annie Labbé*
Armando Pinedo*
Bill Kropp
Bill Staffieri
Blake Evans
Braiden Goodchild*
Brett Matzek
Brian J. Robertson
Brian Keida
Brian Nerney
Bud Thomas
Carlie Persson*
Carlo Bruno
Carol Devenney*
Charles Campany
Chase Evans
Chris Bailey
Chris Dietrick
Chris Potter*
Chris Vangou*
Christina Howton*
Christine Lam*
Christopher Gerra
Christopher Mill
Christopher Nicholaou
Court Maton
Courtney Sargent
Dan Boyce
Daniel D’Archivio*
Daniel Genter
Danielle Sercu
Dave Baranick
David Baldwin
David Baranick
David Leavitt
David Seaman
David Voss
Donald Flinn*
Douglas Struckman
Dwayne MacKay*
E. Robert Young
Elliot Kung
Emily Pillars
Eric Andrew*
Eric St-Amour*
Erika Ryback
Ernest Hudson*
Eugene M. Chan
Frank Magliocco*
Fred Cassano*
Frederic Lepage*
Gimena de Buen Paz*
Gloria Park
Gordon Matheson*
Haley Anderson
Heather Drysdale*
Heather Lashway
Hillary Boulard*
Howard Ro
Ian Gunn*
Ian Nelson
Isabelle Morgan
Jacqueline Kinneary
James MacKenzie
James Oswald
Jamie Rich
Janelle Waters
Janice McDonald*
Jasen Kwong*
Jason Pagliaro*
Jeff Kiley
Jenna Liou
Jeremy Lewis
Jillian Michaels*
Jim Oswald
John Bunting*
Jonathan Sessa
Joseph Pitsor
Joseph Schechter
Julia Powell
Katie Braha*
Keith Durand
Ken Griffin*
Kevin Fossee
Kevin Nishioka
Kristen Conner
Kristy Romo
Kyle Kelly
Laura Daniels*
Laura Hildebrand*
Leah Waldrum
Lee Overstreet
Lee-Anne Kovacs*
Logan Redlin
Lori-Ann Beausoleil*
Lorilynn Monty
Lou DeFalco
Luiza Carneiro
Marcel Sow
Maria Aiello*
Marshall Yellin
Martin Schreiber
Mary Wilson-Smith*
Matthew Berkowitz
Matthew Manza
Michael Alicastro
Michael Anthony
Michael Elger
Michael Shields*
Miranda Hardy*
Miranda Tse
Miriam Gurza*
Mori Contreras
Nadia King*
Nadja Ibrahim*
Naveli Thomas*
Nicholas Mitchell
Nick Ethier*
Oliver Reichel
Patrick Groome
Peter Wilkins
Rachel Klein
Rahim Lallani*
Rajen Shah*
Raynald Lafrance*
Renee Sarria
Rich Fournier
Richard Fournier
Richard Probert*
Rick Barnay*
Rick Munn
Rob Sciaudone
Roberto D’abate*
Ron Bidulka*
Ross Sinclair*
Ryan Ciccarone
Ryan Dumais
Sabrina Li
Sam Melehani
Samuel Hadley
Scott Berman
Scott Tornberg
Sean Hiebert*
Serge Gattesco*
Seth Kemper
Seth Promisel
Shareen Yew
Simon Dutil*
Stan Oldoerp
Stephan Gianoplus
Steve Baker
Steve Tyler
Steve Walker
Steven Weisenburger
Susan Farina*
Susan Smith
Tim Bodner
Tim Conlon
Tori Lambert
Tracy Howard
Tressa Teranishi*
Trevor Toombs*
Wade Yacker
Warren Marr
William Hux
William Keating
Yousuf Abbasi
Zachary Broujos
Zoe Funk
*Canada-based.
PwC Advisers and Contributing Researchers
Emerging Trends Chairs
Mitchell M. Roschelle, PwC
Kathleen B. Carey, Urban Land Institute
Authors
Hugh F. Kelly
Alan C. Billingsley
Andrew Warren
Anita Kramer
Senior Advisers
Christopher J. Potter, PwC, Canada
Miriam Gurza, PwC, Canada
Frank Magliocco, PwC, Canada
Contributors
Sarene Marshall, Urban Land Institute
Stockton Williams, Urban Land Institute
ULI Editorial and Production Staff
James A. Mulligan, Senior Editor
David James Rose, Managing Editor/Manuscript Editor
Betsy VanBuskirk, Creative Director
Anne Morgan, Cover Design
Deanna Pineda, Muse Advertising Design, Designer
Craig Chapman, Senior Director of Publishing Operations
Eva Su, Director, Capital Markets
Emily Vaughan, Manager, District Councils
Andrew Wahlgren, Intern, Capital Markets
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Recommended bibliographic listing:
PwC and the Urban Land Institute: Emerging Trends in Real Estate®
2017. Washington, D.C.: PwC and the Urban Land Institute, 2016.
ISBN: 978-0-87420-391-2
1
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.
2 Emerging Trends in Real Estate® 2017
3
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
The game of chess is not a game of chance, but requires
mastery of a complex set of skills that are both art and science.
A player needs to be alert, equally aware of the strengths and
weaknesses of his own position and that of his opponent. A
plan is needed, most assuredly. The number of possible games
that can develop, however, exceeds the number of atoms in the
universe. Hence, flexibility within the plan is critical. Each move
has a short-term impact and is also a step in positioning for a
victorious endgame.
Like chess, the real estate playing field requires an artful mix of
skills, tactics, and strategies. A chessboard is limited to just 64
squares and is two-dimensional. Real estate’s domain covers a
lot more space, and requires thinking across economic, social,
political, and technological dimensions.
Beginners may often extend themselves swiftly and aggres-
sively into the fray, seeking quick advantage but overlooking the
impact of countermeasures that are obvious to more experi-
enced players. Strategic thinkers see beyond the “next move”
and anticipate the development of a series of moves that, taken
together, create a more powerful control of the board.
As we consider the emerging trends going into 2017, we try to
look two or three moves ahead in the fascinating and competi-
tive field that is the real estate industry. And, since no single
move can be considered in isolation, it will be important to see
the pattern linking several trends as they evolve interactively.
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.”
Exhibit 1-2 Emerging Trends Barometer 2017
abysmal
poor
excellent
fair
Sell
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
good
Buy
Hold
Source: Emerging Trends in Real Estate survey.
Note: Based on U.S. respondents only.
Exhibit 1-1 U.S. Real Estate Returns and Economic Growth
–40%
–30%
–20%
–10%
0%
10%
20%
30%
40%
2017*
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
–5%
–3%
–1%
1%
3%
5%
In
de
x
ch
an
ge
G
D
P
c
ha
ng
e
NAREIT
NCREIF
GDP
NCREIF total
expected return
7.0
NAREIT total
expected return
8.0
Sources: NCREIF, NAREIT, Bureau of Economic Analysis/U.S. Department of Commerce,
ULI Real Estate Consensus Forecast.
*NCREIF/NAREIT and GDP data for 2016 and 2017 are based on forecasts for these
indicators in the ULI Real Estate Consensus Forecast, October 2016.
4 Emerging Trends in Real Estate® 2017
1. Context: A Kinder, Gentler Real Estate
Cycle?
The disruption wrought by the global financial crisis violently
upended financial markets around the world and hammered real
estate markets in the United States. In a real sense, the rever-
berations continue. Real estate transaction volume across the
country rebounded, but development remains below historical
norms for most property types. A major publisher of real estate
news and commentary says, “We have never been in a real
estate cycle like this.” Overall, there is a sense that real estate
has learned painful but valuable lessons. This time, real estate
will not likely be the trigger for a business cycle recession. And,
as far as the number of “innings” remaining, here is what one
chief executive officer (CEO) with multiple international invest-
ment partnerships said: “Don’t worry about innings. This is a
doubleheader.”
At 85 months’ duration (as of August 2016), this business cycle
was already the fourth longest in U.S. history, far longer than the
average 58-month upturns since World War II. Many concurred
with an institutional equity investor describing this as “a mature
phase of the cycle.” As is so often the case, averages are of little
help in understanding business cycle duration. Cycles have
been lengthening over the past half-century, and both the 1980s
and 1990s saw growth phases of 92 and 120 months, respec-
tively. In a word, cycles do not die of old age.
Little in the U.S. macroeconomic data suggests overheat-
ing, the primary symptom of trouble ahead for the cycle. Real
gross domestic product (GDP) growth has settled in at about 2
percent per year, and job growth—monthly aberrations notwith-
standing—is running at about a 1.7 percent pace, approximately
2.5 million annually. The Federal Reserve has been exception-
ally cautious about raising interest rates, due to volatility in the
data, in financial markets, and in the geopolitical climate. The
Fed has shown little inclination to “take away the punchbowl.”
A major factor in seeing the real estate cycle extending even
deeper into the future is the difficulty of securing construc-
tion financing. This is effectively keeping the oversupply that is
typical of a late cycle from emerging this time around. An inter-
national investment executive notes that bank regulators and
new risk rules have enforced discipline on lending, a primary
factor in the development slowdown.
The volume of available capital that is seeking “core properties”
has pushed pricing past prior peaks in many markets, making
some moves on the chess board costly. Reduced leverage
ratios have shifted more risk toward the equity investor. As one
longtime observer of institutional investors put it, “We are in the
‘white knuckle’ phase of the cycle. Champagne is not flowing
at closings.”
Traditional sources of capital are favoring a “risk-off” approach.
Acquisitions are extremely selective, with cap-rate compression
having spread into secondary markets over the last two years.
“Risk is on the demand side,” in the view of a West Coast–based
investment manager.
Exhibit 1-3 Firm Profitability Prospects for 2017
0%
20%
40%
60%
80%
100%
2017
2016
2015
2014
2013
2012
2011
2010
Good–excellent
Abysmal–poor
P
er
ce
nt
ag
e
of
r
es
po
nd
en
ts
Fair
Source: Emerging Trends in Real Estate surveys.
Exhibit 1-4 Real Estate Business Prospects
1
Abysmal
3
Fair
2
Poor
4
Good
5
Excellent
2017
Real estate security
investors
Real estate lenders
Real estate investment
managers/advisers
Real estate services
Commercial real estate
developers
Real estate equity
investors
Residential builders/
developers
Real estate owners 3.90
3.67
3.67
3.64
3.58
3.58
3.47
3.33
Source: Emerging Trends in Real Estate 2017 survey.
5
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
Where many felt a year or two ago that real estate cap rates had
no direction to go but up, an emerging consensus believes that
such a move is not likely in the near term and that the current
level of risk premiums could sustain a modest further decline in
going-in cap rates. This alone is a sign of how unusual the cur-
rent cycle has become.
2. Optionality
Both on the investor side and the user side of the market,
optionality—not just one use, not just one user, not just one
user profile—may be gaining favor as a way to navigate the
cross-currents of volatile markets. The potential extent of such
optionality is as wide as the industry itself. Says one interviewee,
the principal of a boutique investment holding company, “The
developer/financier that understands optionality in their projects
is the winner. Optionality will be of great value over the next
generation.”
Optionality from a user standpoint allows for the adjustment
of space needs to vary in terms of size, location, and use on
an as-needed basis. This has already been the attraction of
gig workers, sole proprietors, and perhaps very small firms to
cowork space, where the provider of that space is most defi-
nitely pursuing more than “just one user.” The ultimate optionality
would eliminate the need for even large firms to lock into a lease
that is tied to a set amount of space in a predetermined location.
And this has now happened. A Fortune 500 communications
company recently entered into a deal with an international pro-
vider of shared-office space. The tenant in this case proposes
to cut its occupancy costs in half within five years. In addition
to the cost savings, the tenant touts the strategy to employees
as promoting productivity, collaboration, and community in its
noncampus administrative centers. The office provider gains
a set amount of cash flow from the user, but also maintains the
option of backfilling any unused space that may not be used by
the core tenant that month.
Optionality gives property owners the ability to maximize highest
and best use, based on immediate tenant demand. Pursuing
“not just one use,” a Washington, D.C., investor/developer has
launched a prototype operation in Alexandria, Virginia, where
1,000-square-foot units can be, at the tenant’s discretion,
either housing, office space, or both. Common-area amenities
abound, including a pet spa, sports and recreational facilities
(indoor and outdoor), and even a soundproof music studio. The
property is a suburban 39,000-square-foot office building that
was empty at acquisition and was bought at a 65 percent dis-
count to its original valuation. The promoter believes that dozens
of such opportunities can be found across the United States,
provided that zoning is flexible.
The opportunities are real, but the execution could be compli-
cated. There are so many moving parts, as a large institutional
investment manager pointed out: “We look at technology and
the inroads of the sharing economy. Take office sharing: what is
the cyclical risk for an office-sharing lease in a downturn? Take
retail space that is shifting from chain stores to restaurants—res-
taurants require higher TIs [tenant improvements], as do service
tenants like gyms, spas, medical uses—but what is the credit
behind those leases?”
Optionality can have an impact on what could be appropriate for
a market. Consider the multifamily sector, in rental apartments
Exhibit 1-5 Time Horizon for Investing
0%
10%
20%
30%
40%
2016
2017
10+ years
5–10 years
3–5 years
1–3 years
Percentage of total survey respondents
10.4%
32.7%
30.5%
26.4%
9.0%
31.7%
32.9%
26.4%
Source: Emerging Trends in Real Estate surveys.
Note: Based on U.S. respondents only.
Exhibit 1-6 New Commercial Square Footage as
Percentage of Inventory
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
2
4
6
8
10
12
14
16
2016
2012
2008
2004
2000
1996
1992
1988
1984
1980
Completions as
percentage of inventory
Vacancy rate
V
ac
an
cy
r
at
e
C
om
pl
et
io
ns
a
s
pe
rc
en
ta
ge
o
f i
nv
en
to
ry
Source: REIS Inc.
Note: Includes industrial, office, and neighborhood and community retail space.
6 Emerging Trends in Real Estate® 2017
and condominiums, and the pursuit of “not for just one user pro-
file.” The head of a REIT sees an emerging millennial market for
ownership units, but one whose growth is bounded by a “keep-
ing our options open” attitude: “Jobs are no longer careers, and
millennials are not yet looking for the commitment of owning a
home. They are footloose in the job market, and footloose as to
roots in the community.” Developers hedge their bets by build-
ing condo quality into rentals—an option that makes sense at
today’s ultra-low cap rates—knowing that market demand can
shift swiftly between the two forms of product. Another multifam-
ily option being discussed in the market is the development of
projects that appeal to multiple generations—millennials and
baby boomers, for example. The two groups are looking for
similar amenity packages but differ on the desired size and
price point of the units
Keeping your options open has never seemed to be a wiser
approach.
3. Transformation through Location Choice
A new breed of CEOs has been turning a widespread economic
development approach on its head, transforming some cities in
the process. Instead of negotiating for the most generous pack-
age of public incentives possible, these business leaders take
the tack that private employers can catalyze civic revivals and,
in benefiting communities, can benefit their enterprise as well.
CEOs speak of the “triple bottom line” of financial, social, and
environmental success. A recent study counted nearly 500
companies whose downtown location choices have been a
potent factor in urban revitalization. Corporate leaders under-
stand the impact, but also stress the self-interested economic
case: attracting talent, penetrating urban markets, and the supe-
rior returns obtainable in live/work/play locations. Diverse cities,
ranging from Cleveland and Oakland to San Diego and Raleigh,
have benefited.
The first wave shows us what this is really about.
The two most prominent efforts with track records under their
belts have been in Las Vegas and Detroit. With several years of
history, we can see that successes and struggles have occurred
in both ventures. Not every gambit proves fruitful and the
measure of decades is more appropriate for evaluating results
in revitalizing cities. Even now, however, we can see what trends
are more promising and what we can learn from stumbles.
The downtown Las Vegas efforts have displayed the kind of trial-
and-error experimentation that epitomizes the venture capital
approach. About $150 million has been spent on Las Vegas’s
Exhibit 1-7 Importance of Issues for Real Estate in 2017
1
No
importance
2
Little
importance
3
Moderate
importance
4
Considerable
importance
5
importance
1
2
3
4
5
Great
Economic/financial Issues
Real estate/development issues
Sharing economy
Taxes and regulation
Income inequality
Global economic growth
Macroeconomic issues
(inflation, dollar strength)
Interest rates and cost of capital
Job and income growth
Social/political issues
Political landscape
Education (cost and availability)
Availability of qualified labor
Immigration
Government budget issues
(local/state/federal)
Social inequality
Terrorism/war/epidemics
Risks from extreme weather
Wellness health features
State and local water regulation
Environment and sustainability
Housing costs and availability
Infrastructure/transportation
Capital availability
Land and construction costs
4.45
4.04
3.62
3.44
3.44
3.36
2.68
3.87
3.54
3.47
3.35
3.18
2.75
2.69
4.30
3.99
3.91
3.87
3.20
2.99
2.63
2.47
Source: Emerging Trends in Real Estate 2017 survey.
7
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
Climate Change and Real Estate
The Emerging Trends in Real Estate® survey asks respon-
dents about the importance to their business over the next
year of risks emanating from environmental issues (including
climate change). For the second straight year, the response
was tepid. While the importance of general sustainability
did increase very slightly, specific climate change implica-
tions—including water regulations, or risks from extreme
weather—continue to be ranked very low compared with job
growth, land costs, and capital availability (see exhibit 1-7).
Climate impacts, in creeping forms such as drought or sea-
level rise, or acute forms like severe storms, can destabilize
entire regions. The U.S. National Security Strategy “is clear
that climate change is an urgent and growing threat . . .
contributing to increased natural disasters, refugee flows,
and conflicts over basic resources such as food and water.”
Interestingly, immigration and conflicts (war/terrorism)
ranked more highly by Emerging Trends respondents
than climate impacts themselves.
E.T. respondents’ low ranking of most climate-related topics
may be attributed, at least in part, to the questions’ one-year
time frame. Nevertheless, there is growing alarm among
leading investors, insurers, business leaders, and policy
makers and increasing evidence of the potential impacts of
climate change (or actions to address it) on real estate:
●
● Lloyd’s City Risk Index illuminates the financial risks of
flooding in some top U.S. real estate markets:
●
● These losses are not all insured or insurable. SwissRe
says that there is a widening “protection gap”: “On aver-
age, only about 30 percent of catastrophe losses have
been covered by insurance over the last ten years. That
means that about 70 percent of catastrophe losses—or
$1.3 trillion—have been borne by individuals, firms, and
governments.”
●
●
In 2015, 195 nations signed the U.N. Paris Agreement
on climate change, which sets out bold policy plans to
reduce climate-change-causing carbon emissions. Real
estate is a prime target for these reductions, since energy
used in buildings is the largest source of carbon pollution
worldwide (nearly one-third).
●
● Access to capital is increasingly likely to be affected by
investor and lender perceptions of climate risk, too. Four
hundred investors, representing $24 trillion in assets,
have pledged to “ensure that they are minimizing and
disclosing the risks and maximizing the opportunities
presented by climate change.”
●
● ULI’s Greenprint Vol. 7 Performance Report, Tenant
Energy Optimization Program, and Returns on Resilience
show how real estate leaders are taking action to address
climate change and achieving bottom-line success.
ULI.org/sustainability.
US Cities’ GDP at Risk from Flooding
Global rank
City
GDP at risk ($B)
3
Los Angeles
13.3
4
New York
13.1
12
Houston
7.8
16
Chicago
6.2
20
San Francisco
5.5
Total
45.9
Homes at Risk from Sea-Level Rise
State
Homes
potentially
underwater (no.)
Housing
stock affected
(%)
Value at
risk ($B)
Florida
934,411
12.56
413.0
New Jersey
190,429
7.35
93.1
New York
96,708
2.1
71.0
Massachusetts
62,069
3.1
51.2
California
42,353
0.44
49.2
South Carolina
83,833
4.42
45.0
Hawaii
37,556
9.07
25.3
Washington
31,235
1.32
13.7
Texas
46,804
0.61
12.0
●
● Zillow, looking at the impact of sea-level rise on homes
across the United States, concluded that 1.9 million
homes—worth a combined $882 billion—are at risk
of being physically underwater by 2100, with some
markets being severely affected:
8 Emerging Trends in Real Estate® 2017
old City Hall; the development of a retail store, restaurant, and
entertainment venue called “the Downtown Container Park”; and
the Airstream Village, where residents live in the classic trailers
or in distinctive RVs called Tumbleweed Tiny Houses. Another
$150 million was dedicated to interest-free loans for startups,
which have had a range of success. On the whole, the trajec-
tory is upward. Las Vegas’s downtown is no longer given up for
dead, but stands as a much more vibrant—and safer—district.
These days, it seems as though everybody wants to see what’s
happening in downtown Detroit. The relocation of a company’s
headquarters from suburban Livonia, Michigan, to downtown
first placed 1,700 employees into Detroit’s depressed central
business district (CBD). That number now stands at 12,500.
With one company controlling an entire district, attention is
paid to how all the pieces fit together so that great synergies
are created
These were bold and inspiring moves and impactful invest-
ments; big businesses can be catalytic. What’s left to do to and
by whom? A complete 21st-century urban transformation into a
live/work/play environment requires special attention to “live”—
that is, to housing density, since the “work/play” components
depend upon a residential base for expansion and growth.
These, of course, are the same key ingredients of success that
are transforming 18-hour cities across the United States.
For those places still struggling, in the meantime, there is great
opportunity in the existing inventory of vacant land, much of
which is held “in rem” by the city. A portion of this could be
placed in a land trust for future development, which would
enable future affordable housing to be developed without future
land price inflation. Developer-investors could hold shares in the
trust, and local banks with Community Reinvestment Act obliga-
tions might be able to provide financing.
Collaboration with city government and the experienced devel-
opment community can promote a more unified and long-lasting
successful approach. The longer-term test will be the degree to
which the initial corporate/government collaboration acts as a
catalyst for other investment. The object is not to create a 21st-
century “company town.” It is to redevelop a diverse and vibrant
urban center.
Here is where leadership supplies what impersonal market
forces may neglect or where they may go more slowly. The
genius of leadership is, in the words of George Bernard Shaw,
“to dream things that never were, and ask, ‘Why not?’ ”
4. Recognizing the Role of the Small
Entrepreneurial Developer
Tall buildings, “starchitect” projects, the upper-echelon market.
It is human nature to focus on the properties that capture the
glamour of development. It is likely that the headlines and prizes
will always gravitate to the biggest and brightest new buildings.
At some point, however, we will probably look back and find
that problem-solving innovation emerges from the small-scale
project developer.
Today’s environment seems to conspire against the small
developer, with risk-averse capital favoring the most expensive
locations and lenders timid about advancing project funds lest
their regulators pounce. As one southeastern developer put it,
“There aren’t 30-year-old developers anymore because capital
is too hard to come by.”
Bigger is not always better. Nimbleness and local knowledge
are not commodities, and several factors suggest that small
and midsized developers have an increasingly significant role
in the industry.
First of all, consider the structure of the building construction
industry. In 2015 (the most recent year for which figures are
available), there were 46,843 firms in the commercial property
building industry whose employee count was less than 20 per
firm. That is 86.5 percent of all the firms in the industry. For firms
focused on the multifamily segment, the numbers are even more
skewed to small companies, at 91 percent of firms. When it
comes to total jobs, however, employment is well distributed in
all establishment sizes up to and including the 100-to-249-
employee category. That distribution—share of total develop-
ment industry jobs by size of firm—has stayed remarkably
Exhibit 1-8 Prospects by Investment Category/Strategy,
2017
2017
2016
2
Poor
4
Good
1
Abysmal
3
Fair
5
Excellent
3.66
3.53
3.48
3.42
3.83
3.82
3.68
3.53
Core investments*
Opportunistic investments
Development
Value-add investments
Source: Emerging Trends in Real Estate surveys.
Note: Based on U.S. respondents only.
9
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
stable since 1990. Bottom line: commercial and multifamily
building in the United States has a broad and very solid base
of small and midsized providers.
These smaller firms are capable of addressing a range of cur-
rent needs: affordability for users across the property types,
infill in older neighborhoods, and attention to smaller markets
of lesser interest to the larger firms.
With construction costs a crucial issue, smaller developers who
build product on sites outside the core CBD can create new
offices, stores, and housing less burdened by extreme land
cost inflation. “Contextual zoning” encourages flexibility of use
and compatibility with existing neighborhoods, and the small
developer is likely to be alert to manageable infill opportunities
with more modest project size, both in the cities and in older
mixed-use suburbs.
While money center banks are finding it difficult to add new
development loans to their books, some of the void is being
filled by regional and community banks. These are the institu-
tions that smaller developers have long depended upon, banks
that are experienced in local market conditions and that have
the capacity to underwrite smaller deals skillfully. As one devel-
oper remarked, “They like the fact that it’s small scale, which
mitigates the lease absorption risk.”
In Emerging Trends, we often bring our spotlight to the large-
scale trends. But much change is incremental, the sum of many
contributors whose efforts, taken together, can make a huge
difference. The enormous number of firms composed of 20, 50,
and 100 employees provides the industry with an ideal labora-
tory for entrepreneurial innovation.
5. Labor Scarcity in Construction Costs
The crossover point where more baby boomers are retiring
than millennials entering the labor force is upon us. A Bureau
of Labor Statistics (BLS) analysis released in December 2015
projected labor force change for the ten years ending 2024 as
being only 0.5 percent per year. Emerging Trends has sketched
the big picture in previous editions. The key change in the
population cohorts from 2014 to 2024 looks like this: the number
of Americans in the 25-to-34-years-old age group, the prime
early-career working years, will be up by 3.2 million; meanwhile,
the 65-to-74-years-old age group, those most likely to exit the
labor force in retirement, will be up by 9.4 million. Between the
boomers and the millennials, gen Xers are solidly in their mid-
career years, but this is a smaller cohort—another reason the
labor pool is somewhat shallower.
The driving factors are age demographics and the labor force
participation rate, and the two are related.
Many believe that the labor force participation rate—the per-
centage of the civilian population 16 years or older who are
working or are actively looking for work—has dropped as one
of the consequences of the global financial crisis. However, the
participation rate peaked in 1997 at 67.1 percent and has been
falling since 2000. As of July 2016, it stood at 62.8 percent. For
men, the rate has been in steady decline since the late 1940s.
Female labor force participation peaked at 60.0 percent in 1999
and has been declining for a decade and a half. Obviously, a lot
more is happening than just displacement stemming from the
Great Recession.
Exhibit 1-9 Profile of U.S. Development Firms, by Size
of Firm and Sector, 2015
500–999 employees
50–249 employees
0–49 employees
500–999 employees
50–249 employees
0–49 employees
500–999 employees
50–249 employees
0–49 employees
Land Subdivision
Residential
Commercial
0%
20%
40%
60%
80%
100%
% of total firms in sector
% of total employees in sector
20–49 employees
0–19 employees
Source: U.S. Bureau of Labor Statistics.
10 Emerging Trends in Real Estate® 2017
As more young people seek higher education, they remain out
of the workforce for a longer period, putting downward pressure
on labor force figures. As more of the baby boom generation
moves into the age-65-plus cohort, its participation rate also
drops. BLS projections call for the overall participation rate to
dip to 60.9 percent by 2024.
We do not have to wait to feel the effects on real estate. Our
interviewees are telling us that they feel the pinch right now, and
they expect it will get tighter over time. A multifamily housing
specialist says, “Labor availability and shortage will continue
to have a significant impact on the market. The shortage
ranges from laborers to more skilled labor. This is pushing up
the development time on projects and is cutting into returns.
The shortage of labor has slowed the number of units being
delivered to markets and may have helped prevent overbuilding
in 2016.”
Executives for a firm intermediating offshore wealth into the
U.S. real estate market note that they see “five-to-seven-month
construction delays due to labor shortages, while costs are
inflating.” An institutional investor from the Midwest adds that
rising costs push apartment development toward luxury units:
“We can’t afford not to develop apartments at the high end
due to a run-up in construction hard costs. The run-up in labor
outpaces construction materials’ costs, though, especially in the
locations we find attractive, where the land basis has also gone
up considerably.”
Exhibit 1-11 U.S. Construction Employment, 1990–2016
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
P
er
so
ns
(m
ill
io
ns
)
P
er
ce
nt
ag
e
of
to
ta
l e
m
pl
oy
m
en
t
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Persons
Jan
2016
Jan
2014
Jan
2012
Jan
2010
Jan
2008
Jan
2006
Jan
2004
Jan
2002
Jan
2000
Jan
1998
Jan
1996
Jan
1994
Jan
1992
Jan
1990
Percent of total employment
Source: U.S. Bureau of Labor Statistics, “Current Employment Statistics.”
Exhibit 1-10 Percentage of U.S. Working-Age Population Participating in Labor Force, 1950–2020
Total
Male
Female
Forecast
30%
40%
50%
60%
70%
80%
90%
Jan
2020
Jan
2015
Jan
2010
Jan
2005
Jan
2000
Jan
1995
Jan
1990
Jan
1985
Jan
1980
Jan
1975
Jan
1970
Jan
1965
Jan
1960
Jan
1955
Jan
1950
P
er
ce
nt
ag
e
of
w
or
ki
ng
-a
ge
p
op
ul
at
io
n
pa
rt
ic
ip
at
in
g
in
la
bo
r f
or
ce
Sources: U.S. Bureau of Labor Statistics, “Current Population Survey”; Moody’s Analytics forecasts.
11
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
ULI district council focus groups convened for Emerging
Trends® 2017 (see chapter 3) identified labor shortages as
an issue in markets as diverse as Atlanta, central Florida,
Cleveland, and Nashville. Large metropolitan areas such as
Denver, Phoenix, and Orange County, California, have seen
double-digit construction job gains in the past year, depleting
the remaining pool of workers.
The causes of the labor shortage are many. One West Coast
consultant suggested that the clampdown on Mexican immigra-
tion alone reduced the labor pool by several hundred thousand
construction workers. As development seized up after 2008,
others pointed out, workers moved to the booming opportunities
in the oil and gas industries. (Reports from the energy industry
indicate that workers let go in the oil and gas slump are typically
migrating to fields like alternative energy, or are enrolling in com-
munity college for retraining.) Skilled craft workers are retiring
more quickly than they can be replaced. Project managers are
also in short supply. As of April 2016, there were over 200,000
unfilled job openings in building construction, according to the
Bureau of Labor Statistics Job Openings and Labor Turnover
Survey (JOLTS).
So we have an “emerging trend” identified in past editions now
biting business in a painful way. What are the next moves on the
chess board?
In a way, this is a real opportunity for the real estate industry
to lead a way toward solutions. Real estate in all its guises—
construction, property management, brokerage, and even
finance—offers ample opportunities to create entry-level jobs
that are not “dead-end jobs,” but the first step on a career path.
Given the exceptionally high cost of a college degree, many
young people might opt for a blue-collar occupation in the
trades if an upward path to greater responsibility and commen-
surately greater income were foreseeable.
While the first moves might seem counterintuitive to many—
increased public funding for vocational/technical education,
support for apprenticeship programs that are typically adminis-
tered by labor unions, funding for public infrastructure projects
that develop entry-level skills—taken together they make a
starting point for attracting younger workers of all stripes to the
business. In addition, immigration reform that would encour-
age, not discourage, blue-collar workers is vital. America’s labor
force needs replenishment at all levels, not just the high-tech
programmers and software engineers who now get the plum
H1-B visas almost the day they become available.
6. Housing Affordability: Local
Governments Step Up
Nowadays, the affordable housing conversation makes a
distinction between “big-A” and “small-A” affordability. Big-A
affordability refers to housing for low-income households and
looks at familiar subsidy programs such as Section 8, the low-
income housing tax credit, and a panoply of state and local
programs seeking to address 12 million households paying
more than 50 percent of their income for housing.
Small-A affordability concerns recognize that, in many markets,
middle-income households—those in the second to fourth
quintile nationally, averaging between $31,000 and $87,000 in
yearly income—are “housing stressed,” spending more than a
third of their income on housing costs. An August 2016 report
from the Washington, D.C.–based National Association of Home
Builders (NAHB) indicated that just 62 percent of all new and
existing homes sold in the second quarter were “affordable”
to the median U.S. household. With home prices rising at a 5
percent annual rate—more than twice as fast as incomes in
recent years—and apartment rents on pace to grow 4.5 percent
in 2016, the level of stress will likely increase in the near future.
Housing costs and availability were rated by Emerging Trends
survey participants as being “considerably important” issues for
real estate, increasing in importance this year when compared
with the “moderate importance” given to future home prices and
affordable/workforce housing in our survey a year ago.
The related strain on the social fabric is getting high-level atten-
tion. As one longtime CEO of a publicly traded company said,
“We’re not paying enough attention to affordable housing, and I
Exhibit 1-12 Age of U.S. Working Population, by Cohort
and Year
35
37
39
41
43
45
47
49
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
P
er
so
ns
(m
ill
io
ns
)
55–64
45–54
35–44
25–34
15–24
Forecast
Source: U.S. Census Bureau.
12 Emerging Trends in Real Estate® 2017
don’t mean low-income or government-subsidized. Just regular
rents. No new buildings are providing that kind of product. Time
will tell if that’s going to come back to haunt us. Not everybody
makes $75,000 to $100,000 a year.”
Affordable housing may be the real estate industry’s vulnerable
flank on the chessboard. Or it might be a strategic opportunity
to move creatively toward a large and growing market, with
incremental profits rather than large windfalls.
Local governments are not waiting on the sidelines; they are
moving more aggressively than at any time in memory to
incentivize—or compel—the private sector to meet worsening
housing affordability needs. A handful are pushing development
impact fees and even considering rent control. The most widely
used approach by far, though, is an old idea (dating to the early
1970s) that has roared back to life: inclusionary zoning. Through
such zoning, cities require or encourage developers to create
below-market-rate rental apartments or for-sale homes in
connection with the local approval of a proposed market-rate
development project.
New York City has the nation’s most far-reaching policy. The
mayoral administrations of Michael Bloomberg (2002–2013)
and Bill de Blasio (2014–present) have used inclusionary zon-
ing to meet affordability targets, recognizing that the sharply
upward movement of land prices compromise affordable
housing feasibility without some form of public incentive. San
Francisco, another booming economy, passed a ballot initia-
tive to expand its requirements for affordable units in new
developments from the previous 12 percent to 25 percent of
the project. However, feasibility studies have suggested an
18 percent requirement, which is likely to be implemented.
Proposals to put inclusionary zoning in place or strengthen
existing policies are advancing in Atlanta, Baltimore, Detroit,
Los Angeles, Nashville, Pittsburgh, Portland, Seattle, and
Washington, D.C., among other cities. Recent research by the
ULI Terwilliger Center for Housing found that the most effective
inclusionary zoning policies provide developers with flexibility
and an array of incentives to mitigate the policies’ potential
negative impacts.
Redevelopment efforts also are affected by affordability issues.
Jurisdictions frequently frame their objectives as “creating and
preserving” affordable housing. Montgomery County, Maryland,
is trying to develop a program for downtown Bethesda whereby
Exhibit 1-14 Moderate and Severe Housing Cost Burden on
Households with Annual Incomes below $50,000
0
10
20
30
40
50
Renters
Owners
All households
2014
2001
Percentage of total households
Source: Joint Center for Housing Studies of Harvard University tabulations of U.S. Census
Bureau “American Community Survey” data.
Note: Moderate burden is defined as housing costs of 30 to 50 percent of household income;
severe burden is housing costs of more than 50 percent of household income. Households
with zero or negative income are assumed to be severely burdened; renters paying no cash
rent are assumed to be unburdened. Income cutoffs are adjusted to 2014 dollars by the
Consumer Price Index for urban consumers for all items.
Exhibit 1-13 Change in Median Existing Home Price vs. Change in Median Household Income
-6%
-3%
0%
3%
6%
9%
12%
15%
Median existing home price
Median household income
2Q
2016
1Q
2016
4Q
2015
3Q
2015
2Q
2015
1Q
2015
4Q
2014
3Q
2014
2Q
2014
1Q
2014
4Q
2013
3Q
2013
2Q
2013
1Q
2013
4Q
2012
3Q
2012
2Q
2012
1Q
2012
4Q
2011
3Q
2011
2Q
2011
1Q
2011
4Q
2010
3Q
2010
2Q
2010
1Q
2010
Y
ea
r-
ov
er
-y
ea
r c
ha
ng
e
Sources: U.S. Census Bureau; National Association of Realtors.
13
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
The State of the Suburbs: Residential
Development Opportunities and
Challenges
In the coming decades, U.S. suburban housing markets are
poised to maintain their relevance and predominance. A new
analytic framework for classifying suburbs reveals significant dif-
ferentiation between cities and suburbs and wide variety among
different types of suburbs in terms of housing characteristics
and conditions. These differences could substantially affect
future residential demand and development in every major mar-
ket in the United States. Key insights include the following:
●
● The United States remains a largely suburban nation. In
America’s 50 largest (and most urbanized) metropolitan areas,
suburbs account for 79 percent of the population, 78 percent
of households, 32 percent of land area, and—despite popular
and media perception—75 percent of 25- to 35-year-olds.
●
● Suburban growth has driven recent metropolitan
growth. From 2000 to 2015, suburban areas accounted
for 91 percent of population growth and 84 percent of
household growth in the top 50 U.S. metro areas.
●
● The large majority of Americans work in suburbs,
although job growth has been more balanced recently.
As of 2014, 67.5 percent of employment in the 50 largest
metro areas was in the suburbs. Between 2005 and 2010,
employment in suburban areas remained stagnant with 0
percent growth, while it increased by 8.2 percent in urban
areas. But between 2010 and 2014, jobs increased by 9
percent in suburbs versus 6 percent in urban areas.
●
● American suburbs as a whole are racially and ethnically
diverse. Fully 76 percent of the minority population in the top
50 metro areas lives in the suburbs—not much lower than the
79 percent of the total population in these metro areas.
●
● The variety of types of suburbs creates a wide range
of development opportunities. The report identifies
development trends, issues, and innovative product
examples in five distinct types of suburb within the 50
largest metro areas: “Established High-End,” “Stable
Middle-Income,” “Economically Challenged,” “Greenfield
Lifestyle,” and “Greenfield Value.”
Housing in the Evolving American Suburb, RCLCO and the ULI Terwilliger Center for
Housing, November 2016.
older apartment buildings could sell excess zoning capacity
(unused floor/area ratio [FAR]) as “priority sending sites” in
exchange for committing to retain 30 percent of their units at
targeted affordability rents. California legislation permits com-
munities to allow higher densities in exchange for meeting
affordable housing objectives.
Similarly, in cities of lesser density and in older suburbs, plan-
ning officials can work with a new breed of players pursuing
strategies to maintain or only modestly increase current rent lev-
els in the existing rental housing stock. By making only the most
necessary improvements and having laser focus on property
management, these firms deliver 100 percent occupancy and
competitive current income returns, while helping meet a press-
ing social and economic development need. The strategy is
especially effective in markets where the spread between Class
A and Class B/C apartment rents is fairly wide.
Population increase, upward pressure on land and building
costs, and persistent wage stagnation challenge government
and the private sector to devise a menu of solutions. The trend
to meet that challenge is gathering momentum. This is a “long-
game” conundrum whose immediate difficulties are prompting
an array of responses now.
7. Gaining Entry beyond the Velvet Rope
Trends do not always go hand in glove with each other; there can
be cross-currents. When one is dealing with such fundamental
issues as jobs, housing, and public policies, it is not surprising
that disparities and disagreements come with the territory. But at
a time when a number of markets are struggling with a shortage
of affordable housing, opposition to potential solutions may be
on the rise. And it may seem that there has rarely been a time
when divisions have been more in evidence. Politics has brought
this into sharp relief, but the fault lines were there already. Some
Emerging Trends interviewees see this as the further progress of
“NIMBYism,” now often more easily broadcast and perpetuated
via social media campaigns. But where the “not in my back-
yard” phenomenon largely represented a resistance to specific
development, it appears that we now must recognize a trend that
might be called “the velvet rope.”
At the entrance to fashionable nightclubs or red-carpet opening
nights, access is controlled through use of velvet ropes on brass
stanchions. Bouncers let only select individuals gain entry—the
others have to stand and look in from the outside. Two points
should be made about this velvet rope in the context of urban
economies and real estate.
14 Emerging Trends in Real Estate® 2017
The first point has to do with the widening income gap. Just as
the downtowns of cities “hollowed out” in the second half of the
last century, so too the middle class has been hollowing out.
Income inequality is high for cities like New York, Los Angeles,
and San Francisco. However, the level of inequality is high and
increasing in other metro areas, including Miami, Charlotte,
Boston, and Atlanta. For these areas and many others, the
velvet rope means increasing income segregation.
Secondly, exclusionary forces are equally alive in suburbs
and cities.
Suburbs grapple with their own velvet rope dilemma. Analyses
of millennials’ preferences have identified density, diversity,
walkability, and transit accessibility as factors in location choice
for this 83 million–person demographic cohort. And, as we
have pointed out in previous editions of Emerging Trends, these
factors are equally attractive in the suburbs as in the densest
urban core. The issue is that to create these amenities and keep
neighborhoods affordable often requires changes to traditional
suburban development. Yet the increase in demand for land use
attorneys and consultants by communities resisting change, the
ease of assembling opposition to planning changes in the era
of social media, and other forms of opposition to development
indicate the degree to which some suburbs are flat out resisting
the very attributes demanded by potential new residents.
This not only hobbles attempts to restore the residential attrac-
tiveness of suburbs, but also impedes the ability to keep
neighborhoods affordable.
In cities themselves, the very characteristic of density magnifies
the impact of change. Most often, the debate is not between
what’s good and what’s bad. It is a question of how the new
connects with the old. The urban velvet rope would freeze time
in favor of the status quo. Real estate development encounters
this directly. New building design can ignore neighborhood
history and context, or it can seek to bring that history forward
organically while meeting the changes in the city’s makeup. It is
not only real estate, though. Community organizations can seek
to keep local demographics static, or can find ways to make
diversity work in the neighborhood’s favor by discovering the
vibrancy in multiculturalism—in the food experience, in ethnic
festivals, in the upward striving that has been the hallmark of
new, opportunity-seeking residents. Government, business, and
the not-for-profit sector can go either way: rallying to keep things
“as they have always been,” or helping shape a future that is
really continuous with the past, recognizing that cities have
never been stuck in time, but have always been organisms that
have grown and prospered by adaptation.
There is, therefore, a significant cultural change that requires
careful attention. Where “exclusivity” was often seen as a critical
selling point for communities in the past, it is now being eclipsed
by “inclusiveness” as a social value. The velvet rope is already
an anachronism. Communities seeking to retain economic, eth-
nic, racial, or other barriers as a “de facto” matter are engaged
in a rear-guard action, contrary to their own self-interest.
8. The Connectedness of Cities
There are now more objects than people connected to the
internet, a phenomenon known as “the internet of things.” Point-
of-sale registers communicate with warehouses. Smart phones
have apps to search stores for the best prices. Sensors embed-
ded in roadways reroute logistics paths. HVAC systems are
automatically controlled in real time.
Known by the shorthand “IoT,” the estimate for internet-con-
nected devices hit 10 billion in 2015 and is projected to more
than triple to 34 billion by 2020. As always, the relationship
between advancing technology and the real estate industry is
a complicated one. But the evidence suggests that a market’s
trend toward technological advantage is correlated with superior
real estate performance.
The seven “smartest cities” in the United States are listed as
Seattle, San Francisco, Boston, New York, D.C., Portland,
and Chicago in a ranking from Co.Exist, an online publication
of the magazine Fast Company. Smart cities are defined as
those gathering data from devices and sensors embedded in
roadways, power grids, buildings, and other assets. They use
Exhibit 1-15 U.S. Internet Penetration
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
50
100
150
200
250
300
350
Internet users
2016*
2014
2012
2001
2008
2006
2004
2002
2000
M
ill
io
ns
P
er
ce
nt
ag
e
of
p
op
ul
at
io
n
Penetration
Source: International Telecommunication Union (ITU), World Bank, and United Nations
Population Division.
*Data for 2015 and 2016 are estimates.
15
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
an integrated communication system to share this information
instantaneously. Software extracts information and discerns
relevant patterns for users.
Smart cities match well with the list that Emerging Trends
identifies as top markets for investment and development (see
chapter 3). A 2016 Verizon report on IoT highlights tech applica-
tions such as street lighting and parking patterns analysis being
put in place by cities including San Diego, Jacksonville, and
Charlotte. Taking another approach, IoT Analytics has praised
Los Angeles, San Diego, and Denver for innovations ranging
from wearable devices for health and security to widely distrib-
uted wi-fi accessibility.
The key link between technological advances and real estate
investment performance is productivity. IoT can upgrade
efficiency in several ways. Deploying sensors throughout the
city helps save time and money by targeting capacity use of
transportation systems, lighting, overall energy demand, parking
availability, and even necessary pothole repairs. Moreover, IoT
infrastructure can help buildings control operating expenses for
basic services like power, water, and life safety. Density, in the
form of a concentrated market with limited “last mile” require-
ments, favors 24-hour and 18-hour locations in IoT adoption.
That doesn’t mean that smaller places need be left behind.
Cities with the highest internet adoption rates correlate with
advanced educational attainment. The Denver suburb of
Centennial, for instance, has the highest rate of internet con-
nection of any U.S. municipality, at over 96 percent. Cary, North
Carolina, in the Research Triangle area, had a similarly high rate.
Colleges promote high connectivity rates, as seen by top-ten
scores for College Station, Texas, and Tempe, Arizona. Among
larger jurisdictions, San Jose, San Diego, and Seattle approach
the 90 percent mark for household internet use. However,
Detroit, Hartford, and other cities struggling with poorer urban
neighborhoods have low technology adoption rates, a digital
divide that mirrors the income divide for such places.
9. Ready for Augmented Reality?
Who would have thought that a 1990s video game like Pokémon
would grab headlines, prompting nearly 10 million people to
get out and search for imaginary video characters in 2016?
Furthermore, who would have thought that this would set the
imagination of serious real estate owners and operators afire?
“Augmented reality” (AR) is not a brand-new phenomenon:
the technology has been available since 2012. AR projects or
overlays a digital image on the physical world itself. More than
that, the image can be modified by the instruction of the users.
Day and night views, for example, can be generated, as well as
interior or exterior simulations.
Brokers have been able to use virtual tours for quite some
time now, but AR brings the quality to a much higher level.
Prospective purchasers or tenants can customize the experi-
Exhibit 1-17 Venture Capital and Corporate Investment
in Blockchain
$0
$50
$100
$150
$200
$250
$300
Corporate
Venture capital
2016 YTD
2015
2014
2013
US$ millions
$54.0
$161.5
$298.0
$14.1
$131.0
Source: CBInsights.
Exhibit 1-16 Potential 2025 Revenue from Virtual and
Augmented Reality ($ billions)
Video games
Health care
Engineering
Live events
Video
entertainment
Real estate
Retail
Military
Education
$11.6
$5.1
$4.7
$4.1
$3.2
$2.6
$1.6
$1.4
$0.7
Source: Goldman Sachs Global Investment Research.
16 Emerging Trends in Real Estate® 2017
ence by visual “what if” alterations. As a marketing tool, it is a
definite enhancement.
But what “Pokémon Go” has demonstrated is that AR can
motivate people to actually get out and visit locations, even
properties they had not planned in advance to visit. Since
real estate, both residential and commercial, relies upon the
consumer experiencing a property—almost always in a site
visit—before committing to a transaction, stimulating such a
visit by a technological lure can be extremely powerful.
Many observers anticipate that AR will meld the “clicks” experi-
ence with the “bricks” of the stores themselves. Customized
“lures” can bring shoppers to the stores, using smart phones
with activated Global Positioning System (GPS) technology. If
retail real estate is trending more and more toward “experience”
and “entertainment,” AR would seem to be a natural fit.
Other now-feasible AR applications range from closer collabo-
ration of developers with architects and designers to property
operation disciplines aimed at reducing error rates. This is very
much a “big data” technology that will require the develop-
ment of new data centers, well situated in relation to end-user
markets, together with the storage and infrastructure supports
needed to sustain the applications.
This is starting now, not in the far-off future. Experts expect $2.6
billion in real estate applications by the year 2025. The opti-
Rising numbers of female executives, affluent immigrants,
younger and older workers, and retirees will have a profound
influence on community building in the United States over the
next ten years.
Key trends related to demographics and household formation
that will affect real estate investment and development through
2025 are as follows:
●
● The continued rise of working women: Women now earn
58 percent of all college degrees in the United States, and
they earn more than their spouses 38 percent of the time. By
2025, the number of women in the workforce will rise to 78
million, 8 million above the level in 2015.
●
● A rising number of affluent immigrants: Immigration
will account for more than half the U.S. population growth
by 2025. Contrary to some perceptions, many immigrants
coming to the United States are highly educated middle- and
upper-class families with substantial purchasing power.
●
● The graying of America: By 2025, 66 million Americans will
be over age 65—which is 38 percent more than in 2015. This
will create lucrative opportunities for customer segmenta-
tion, given the widely varied needs and lifestyles of younger
retirees versus older ones.
●
● Young adults driving household formation: 18- to
27-year-olds will lead the majority of new household growth
over the next decade, despite forming households more
slowly than their predecessors. They are expected to create
14 million households by 2025.
Grouping the U.S. population by decade born, rather than by
generation, provides insights into behaviors shaping trends, with
the most influential (and largest) groups being the following:
●
●
Innovators, born 1950–1959, who led a technology
revolution;
●
● Equalers, born 1960–1969, who achieved more equality
between women and men in the workplace;
●
● Balancers, born 1970–1979, who led a shift toward a better
work/life balance;
Women, Immigrants, Younger and Older Workers, Retirees: Reshaping Community
Building for the Next Ten Years
Foreign-Born Share of U.S. Population
0%
5%
10%
15%
20%
2010
2000
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
14%
15%
13%
12%
9%
7%
5% 5%
6%
8%
11%
13%
Source: John Burns Real Estate Consulting LLC calculations of U.S. Census Bureau
Decennial Census.
17
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
mists see unlimited opportunity, of course. Others may worry
about how AR, as well as the internet of things, will deal with a
world where cybersecurity is of increasing concern and where
“security” often is only developed once hackers have exposed
vulnerabilities in very nasty ways. The probability: accelerating
change, despite increased risks.
10. Blockchain for 21st-Century Real Estate
If a sense of immediacy about a