emerging trends in real estate 2020 - maar.org€¦ · of emerging trends survey respondents feel...

The 2020 MAAR Commercial Summit

February 20, 2020

Emerging Trends inReal Estate 2020

PwC

Market Sentiment; Still positive, but are we seeing some diversity in opinion?

Emerging Trends in Real Estate 2020

16/ ULI

PwC

Is this what an extended

expansion looks like?

• Abysmal to poor is up slightly, but

still a very small percent of the total

• Some moderation is expected as

those expecting a fair outcome in

2020 rises to 22.6%

• Outlook still shows some confidence

as those expecting good rises each

year

• Since 2016 the excellent outlook has

been cut in half

2020 Expected Profitability


17

15.6% 16.8% 19.3% 20.4% 22.6%

57.2%61.5%

62.8% 61.8%63.6%

25.7%19.8% 16.8% 17.0%

12.6%

2016 2017 2018 2019 2020

Abysmal Poor Fair Good Excellent

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PwC

23% 23%

What is behind the change of heart?

1. Economy – 36%

2. Fundamentals – 29%

3. Government – 14%

4. Capital markets – 11%

5. Strategy shift – 5%

1. Strategy shift – 28%

2. Fundamentals – 28%

3. Internal changes – 22%

4. Economy – 16%

5. Capital markets – 6%


18

Reasons given for change in expectations from 2019

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Lower Higher

PwC

New Worries?

Coronavirus

Election cycle begins

Geopolitics

Social Unrest


19

PwC

Let’s not talk ourselves into a recession, but we do need to keep an eye on the possibility


20/ ULI

PwC

Post WWII average annual GDP growth

3.2% 2.0% 2.2%

Key numbers to consider

21

Consensus forecast for average annual GDP growth over the next 5 years

Memphis average annual GDP growth over the past 2 years


/ ULI

PwC

Personal consumption expenditures

Goods

Durable

Non durable

Services

Private domestic Investment

Fixed investment

Non residential

Residential

Change in private inventories

Net exports of goods and services

Exports

Imports

Government consumption expenditures and gross investment

Federal

National defense

Nondefense

State and local

The danger in relying on averages…

22


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C

+ I

+ G

+/- X

PwC

72.9%Average percent of

survey respondents

that recommend

either buying or

holding in 202039.3%

40.7%

47.8%

52.1%

56.8%

MEDICAL OFFICE

DATA CENTER

SENIOR HOUSING

WORKFORCE HOUSING

FULFILLMENT CENTERS

Top “Buy” recommendations

What property types do survey respondents think will be winners in 2020?

23


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PwC

3.01 3.08 3.103.26

2.54

2.93 2.932.77 2.76

3.59

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Value-addinvestments

Development Opportunisticinvestments

Redevelopment Core investments

2019 2020

Prospects by investment category/strategy 2020

24

Survey respondents more risk averse than in 2019 survey


Survey respondents cited

the length of the current

economic expansion,

expectations for slower

economic growth and

concerns for potential

oversupply as reasons to

focus more on core

investments in 2020

PwC

The flow of capital into real estate is both a blessing and a curse


25/ ULI

PwC

Last time we talked about

TINA

PwC


26

2007

/ ULI

A few assumptions that may have gone wrong

• Unrealistic rent growth assumptions

• Further cap rate compression

• Continued demand

PwC

2019

Lessons learned! Maybe we are a little more restrained this time around


27/ ULI

PwC

57.5%Average percent of

all property types

that survey

respondents feel are

fairly priced

47.5%

50.3%

58.3%

58.3%

68.7%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

HIGH STREET RETAIL

CBD OFFICE

LUXURY HOTELS

LIMITED-SERVICE HOTELS

LUXURY APARTMENTS

% Considered overpriced by property type

Column1

Despite record high property values, market doesn’t consider them too out of line

28


/ ULI

PwC

Cities that have invested in their infrastructure are clearly seeing an economic advantage

DateEmerging Trends in Real Estate 2020

29

Washington stumbles; States

and Cities pick up the ball

/ ULI

PwC

81%Of Emerging Trends survey

respondents feel that transportation

related infrastructure investment

would have the greatest impact on

the real estate market

What type of infrastructure investment would have the greatest impact on the real estate market


30

1.7%

3.6%

6.5%

7.2%

7.5%

35.5%

38.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

Affordable Housing

Education/Environmental/Amenities

Energy/Utilities

Technology

Air/Rail/Port

Mass Transit

Roads/Bridges

Percent of Respondents

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PwC 31


Top 20 Markets for 2020 Market PriceA rising number of choices appealing to many appetites

Major Capital Magnets SeasonalOld favorites that we keeps us coming back

Determined Competitors Mixed PricingFamiliar choices that may hide a hidden kick

Aligning Expectations Fair PricingChoices that are delivering what they promise

Treasures Ripe for Discovery Mixed PricingAn oyster with a pearl or tomorrow’s favorite today

Potpourri: Thrifty Choices, Boutiques, and Special Situations Ala CarteYou may be pleasantly surprised what you’ll find

Market Menu“ One size doesn’t fit all

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PwC

Top 20 Markets

32


#1 Austin

#2 Triangle Region, NC#3 Nashville

#7 Orlando

#4 Charlotte

#5 Boston

#6 Dallas/Fort Worth

#8 Atlanta

#9 Los Angeles

#10 Seattle

#11 Tampa/St. Petersburg

#12 San Francisco#13 San Jose #14 Northern VA

#15 Brooklyn

#16 Indianapolis

#17 Denver

#18 Orange County#19 Charleston

#20 Portland

❑ Heavily weighted toward growth and the Southeast

❑ More diverse and reflect recent volatility

/ ULI

PwC

BoutiqueMarkets

33


New Orleans

St. Louis

Memphis

Virginia Beach

Milwaukee

Hartford

❑ Diverse market set

❑ Investment below expectations

❑ May be transitioning economies

❑ Specialized knowledge is a distinct advantage

❑ Dominated by local/regional market participants

/ ULI

PwC

High growth or low growth, Southeast or Midwest, everyone is talking about some form of housing affordability


34

Housing: The Great Unraveling

/ ULI

PwC

Political climate is leading to a rise in rent control rules

35

Concern that areas that enact rent control will inadvertently slow new investment in existing housing stock and slow the development of new housing

Emerging Tends in Real Estate 2020

PwC

Housing shortfall

36

Household formations easily outpace new supply


(4,000,000)

(3,500,000)

(3,000,000)

(2,500,000)

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

Units

Housing Surplus/(Deficit)

Housing Surplus/(Deficit)

❑ A simple analysis that doesn’t even

address geographic specifics, but clearly

points to the depth of the problem

❑ Demographic and economic factors are

driving household formations

❑ Demographic and economic factors are

making it difficult for the housing industry to

add units at the required rate

/ ULI

PwC

Searching for a feeling of place


37

While technology and the gig economy have given us the

tools to work from anywhere, human nature seems to

crave a sense of community. This is having an impact on

the real estate industry as well

❑ Employers are finding that creating a sense of

community is a benefit in the attraction and retention of

employees

❑ Multifamily properties are substituting unit amenities

with community amenities to appeal to tenants

❑ Landlords that can create a sense of community in their

buildings find it easier to attract and retain tenants

❑ Neighborhoods are looking to attract the right buildings

that will be an anchor to developing a community feel in

the surrounding area

/ ULI

PwC

1960’s interpretation of the open office

concept

1980’s interpretation of a private office

concept

Today’s interpretation of collaboration

space

Remember when it was just work space?


38/ ULI

PwC

One work space does not fit all work

Tenants want space to address different goals

• Collaboration in formal and informal settings

• Quiet space for individualized work

• Available space for hotelling workers

• Flexible space that can be utilized to house staff on a

temporary basis

• Space where employees can relax, eat, socialize

It is all about work process


39/ ULI

PwC

Community doesn’t end at the workplace

40


/ ULI

Tenants Building Neighborhood

PwC

Suburbs are becoming cool again


41

The expectation that Millennials would begin to

move to the suburbs has become a reality. This

generation however, is putting their own spin on

the suburbs they are choosing.

❑ Suburbs that are in favor offer many of the

same amenities that drew the generation to

the urban core

❑ Many of these suburbs are also gentrifying

to meet the needs of the new residents

❑ “You can’t be a suburb of nowhere” –

Suburbs in markets with strong urban cores

are seeing the most growth

/ ULI

PwC

Cool Suburbs

42


/ ULI

Bellevue, WA

Beaverton, OR

Maplewood, NJ

Denton, TX

Alexandria, VA

Decatur, GA

Somerville, MA

Arvada, CO

Kirkwood, MO

Belmont, NCPasadena, CA

Winter Park, FL

Round Rock, TX

Alameda, CAEllicott City , MD

Royal Oak, MI

Media, PAEvanston, IL

Source: Apartment therapy

PwC

Big surprise! The boomers may not be doing what we thought they would, what will be the impacts on following generations?

Emerging Trend in Real Estate 2020

43/ ULI

PwC

22%The percent of total population over

65 in 2046. The year the first

millennial will turn 65

35.00

41.74

72.68

83.78

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

% o

f Tota

l P

op

ula

tion

(mill

ion

s)

Population over 65

% of Total Population

First Baby

Boomers turn 65

Population over 65 on the rise

44


First Gen Xers

turn 65First Millennials

turn 65

Source: US Census Bureau, Moody’s Analytics/ ULI

PwC

Sustainable and green building has been so successful, that ESG just seems like the natural progression of these ideals

DateEmerging Trends in Real Estate 2020

45/ ULI

PwC

$30 Trillion end of 2018

• Up 34% since 2016

• Europe = $14.1 Trillion

• United States = $12.0 Trillion

• Up 38% since 2016

Cities with Zero Carbon Initiative Goals

• Over 100 cities have announced climate targets

• New York City – Climate Mobilization and Local Law 97

• Los Angeles – Green New Deal

Reasons for ESG Investing

• Client demand

• Fulfill mission or values

• Pursue social or environmental benefits

• Improve returns

• Minimize risks

• Fulfill fiduciary duties

Factors influencing the ESG market

46


PwC

List of ESG issues considered by private equity investors

89% 87%83%

76% 76% 75%71% 71%

62% 61% 60% 57%

47% 47%41%

37% 36%29%

13%

47

More than just green buildings, areas of concern range from ethics to personnel management

DatePresentation Title

PwC

The ultimate goal of implementing technology is to make the whole equal more than the sum of the parts


48/ ULI

PwC

We continue to generate more data every year!

49


/ ULI

PwC

How technology is being used today

Visualization • Seeing how things are going to happen

Facilitation • Making life easier for tenants

Collaboration • Bringing people and processes together

Efficiency • Improve operational processes

Decisions • Using data to enhance decision making

50


/ ULI

PwC

5G will enhance speed and reliability

The increased speed and latency provided by 5G will make

a number of technologies viable

• Increased broadband access

• Autonomous vehicles/smart infrastructure

• Control of remote devices

• Machine learning and enhanced IOT (internet of things)

Will 5G allow current and existing technologies to have a real impact?


51

Date

/ ULI

PwC

What you don’t want to see when…

52


PwC

A confident industry

Slower but more sustainable growth?

Strategy will be more important as there will be more over/under performers

Change will be ongoing


53

pwc.com

© 2019 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member

firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a

substitute for consultation with professional advisors.

/ ULI.org

Thank You!Please feel free to download a copy of the report at

ULI.org/ET20

Or

PwC.com/us/etre

Questions Feel free to contact me at:

[email protected]

emerging trends in real estate 2020 - maar.org€¦ · of emerging trends survey respondents feel...

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