Top Ten Emerging Trends in Real Estate for 2015
In this, the project’s 36th year, the survey derives from a record number of 1,400 participants, including 400 face-to face interviews, with people recruited from all walks of commercial real estate life. Owners, private and institutional investors, service firms, commercial developers, lenders, REIT professionals and residential homebuilders share their opinions and experience. That, plus the latest significant and relevant market and demographic data are the foundation of the report.
What about profitability?
Heading right for the bottom line, I had to ask Mitch how optimistic we could be about 2015. “For 2015 we see 74% positive expectation for the market. To put that in perspective, in 2009 when we asked about profitability, only 17% were positive. Over 21% of our respondents expected poor performance. The remaining 60% were pessimistically neutral. Contrast that to last year, when over 67% expressed a positive expectation.”
Does that mean we’re moving up too fast? Are we at risk for another bubble? Will the good times last? In order to answer those questions, we looked at the top 10 findings from Emerging Trends in Real Estate 2015®
Top Ten Emerging Trends for 2015
- THE 18 HOUR CITY COMES OF AGE
Coastal gateway metros like New York and San Francisco have been called the “24-Hour Cities,” whose live/work/walk urbanity is one reason for their desirability. But most Americans and many companies can’t afford these cities, and thus emerges the “18-Hour City:” a smaller, more affordable metro that is successfully attracting employers and population with similar amenities.
The Megatrend here is urbanization. As smaller cities revitalize, demand is increasingly for live/work/walk neighborhoods. That lifestyle is no longer just a youth trend, but becoming much more mainstream, including retirees and families. Development funds are following, as investors will allocate capital where the population is flocking.
Charlotte, Raleigh-Durham, Denver, Brooklyn, Portland and Atlanta are the standouts in this years’ report, where we studied the 3-year population trends of over seventy cities.
- THE CHANGING AGE GAME
The lifestyle decisions of Boomers are expected to have the greatest impact in 2015, especially on the housing, office and retail markets, and to a lesser degree, lodging and tourism.
Since by definition population ages 16-64 define the workforce, you can say that the 64-year-olds are exiting the workforce as the 16-year-olds are entering. But it’s not that simple.
It’s as yet unclear how much Boomers will want, or need, to work in retirement. And, what choices Millennials will make about renting or owning as they move into their middle years are unknown as well. Will they embrace the suburbs? So far, that generations has made different decisions than their predecessors.
- LABOR MARKETS TRENDING TOWARD TIPPING POINT
A significant gap is developing between talent needed and available in larger markets.
Millennial entrance to the labor force has already peaked, and Boomer retirements are accelerating. For professional jobs in major markets, Millennials and the long-term unemployed often don’t have the skills. Long-term trends indicate labor shortages ahead, and greater opportunity for highly skilled and older workers in major markets.
- LOVE-HATE RELATIONSHIP WITH TECHNOLOGY
Real estate is still a very analog business in a digital world. Many of our participants resist embracing technology, which is, by nature disruptive. This is understandable. The CRE business is traditionally conservative, in that ‘if it ain’t broke, don’t fix it’ way.
But change is unavoidable.
The increase of telecommuting is already having a significant impact on how office space is used. You’ve heard of those companies that help people rent their homes for lodging? Several firms are developing this tool for the office market, as we speak. You can bet this will be disruptive.
Crowd funding is coming to real estate, and you will see capitol aggregated in brand new ways. New legislation is only beginning to impact how investors raise funds. Speaking of which….
- 900-POUND GORILLA SWINGS INTO VIEW
Clever investors are already beginning to tap the enormous six trillion dollar defined contribution plan funds (such as IRAs and 401ks) into commercial real estate investing, via the self-directed IRA instrument and other devices.
It’s estimated that if a modest 5% of this pool were allocated to such ‘alternatives’, you’d see a tremendous well of capital unleashed. Potentially $300 billion or more could certainly make an impact.