Investors and lenders have a new dose of confidence in the nation's strengthening real estate market, with the most positive assessment in the U.S. economy in years, according to a recent survey by law firm Akerman LLP. The sixth annual Akerman U.S. Real Estate Industry Outlook Survey indicates that nearly 60 percent of real estate executives are more optimistic about the market this year than they were in 2014. The reasons for this optimism include a brightening economy, low interest rates, and increasing foreign investment in U.S. real estate. (See chart below.)
The survey also took a look at real estate trends affecting the commercial and residential sectors. Following are eight key areas to watch this year.
1. New Urbanism: The aging of the baby boomers, the arrival of the millennials in the workforce, and the increasing preference of both to combine a "live, work, play" lifestyle in a compact city center, are reshaping the real estate market. Thirty-four percent of executives surveyed believe this changing lifestyle preference will have the most significant impact on U.S. real estate development in 2015 and beyond.
2. Job Recovery: Five out of 10 real estate executives say employment in 2015 will either be marginally or significantly higher than in 2014, a strong indicator of economic growth. Nearly 30% predict the ability to create well-paying jobs will have the most significant impact on real estate development over the next three years.
"Even though the employment numbers have gotten so much better than they were four or five years ago, we still have not seen the kind of recovery in employment that we have been looking for, so that leads me to think that we are not yet at the peak. I still expect the real estate market to get stronger," said Steven Polivy, chair of Akerman’s Economic Development & Incentives Practice and the New York Office managing partner.
3. The Longevity Dividend: The aging population, coupled with housing preferences and needs, also are creating an attractive outlook for both the senior living and healthcare real estate sectors. Twenty-six percent of executives believe this trend will have the most impact on real estate development. Changing practices in the delivery of healthcare also are increasingly shaping real estate development, building design and investment models.
"Healthcare systems are moving more into a space that adapts market principles in the delivery of client-centric care," said Beppy Owen, co-chair of the Senior Living Facilities Practice. “When it comes to healthcare real estate and senior housing, investor appetite is at a high, as property valuations continue to rise in the wake of attractive profits from the sale of those asset classes."
4. Diversity of Equity: Two important trends in real estate involve the expansion of real estate investment trusts into new market sectors and the flood of equity capital into the market. These factors help underscore a continuing sense of diversity of funding sources and healthy, responsible growth in the real estate sector.
"The sources of capital are very diverse," said Andrew Berman, partner in the Real Estate Practice Group. "There are any number of different and innovative ways that people are financing transactions, and that seems to point to a positive outlook."
5. Alternative Funding Sources Create a Healthy Lending Environment: The emergence of segments like crowdfunding are emblematic of an increasingly diverse lending environment. Some developers have been looking at transnational bond markets as an efficient and more affordable alternative financing model to mezzanine debt. Meanwhile, a surge of EB-5 immigrant investors has fueled a new era of high-rise development.
"The EB-5 program combines flexibility with a more attractive pricing model for most developers who see mezzanine debt rates that are more similar to institutional debt, but without all of the restrictions and requirements that you would get with institutional lenders," said Polivy.
6. The Real Estate Renaissance for Secondary Cities: Some tier-two cities have become a viable alternative to traditional urban centers for real estate investment. Experts say it is the very nature of tier-two cities themselves that make them world-class hubs of prosperity. They provide access to resources that make advanced industries—like biomedicine, pharmaceuticals, energy and technology—thrive. These industries provide an imperative for the real estate sector—high-paying jobs.
7. Regional Connectivity and Infrastructure Development: As globalization and technology converge, geographic boundaries begin to blur, and the market increasingly demands better mobility and connectivity to support a "live, work, play" lifestyle. American cities are recognizing a new need for economic and transportation linkages between communities and businesses, and are turning to innovative projects that support these challenges.
"Creating an attractive physical environment and providing good infrastructure are the most important things the public sector can do to build a sustainable future," said Neisen Kasdin, a land use partner in the Real Estate Practice Group and the Miami Office Managing Partner. "Many cities are looking to Miami as a model, where an innovative inter-city rail system and central station are being built and top architects are working comfortably within a new form based zoning code to create great neighborhoods and design some of the most important new buildings in the country."
8. Putting a Value on Sustainability: While only 7% of Akerman Survey respondents felt sustainability practices will have a significant impact on U.S. real estate development over the next three years, there is a modest increase in awareness and implementation of sustainability initiatives spreading across the commercial and industrial sectors. Initiatives aimed at energy, water and waste efficiency are also gaining popularity among progressive cities and coastal areas.