The "Emerging Trends in Real Estate 2020" report, co-authored by the Urban Land Institute and PWC, has identified Austin, Texas, as the strongest market for real estate investment in 2020, out of 80 major cities in the U.S. Raleigh/Durham, N.C., is second on next year’s list, followed by Nashville, Tenn., Charlotte, N.C., and Boston.
While real estate is considered a favored asset class in the U.S., according to the report, the combined forces of oncoming economic uncertainty and changes in demographics, consumer behavior, technology, infrastructure, and climate will require industry professionals to be flexible in their planning and operations. Adaptability to change, the report says, will be a key factor in the industry’s ability to weather the next downturn, or softer real estate demand.
“Throughout this period of extended economic growth, real estate development has been dominated by creative mixed-use projects that have revived many urban areas,” says W. Edward Walter, ULI’s global chairman. “Going forward, those who continue to innovate with spaces that can be easily be repurposed as cities evolve will have a competitive edge. Staying ahead of change means being flexible and adaptable.”
The report highlights 10 distinct “emerging trends” set to influence real estate over the next decade:
- Easing on Down the Road – Professionals should pay attention to, and prepare for, the possibility of an economic downshift and its oncoming effects on demand.
- The Siren Call of TINA (There Is No Alternative) – The report urges investors to avoid “[deploying] capital just because it is available.”
- A New Menu for Markets – Investors are drawn to different markets for different reasons, “specializing” in certain traits.
- Housing: The Great Unraveling – The affordability crisis has reached a “breaking point” and has led to a rise in co-living, inclusionary zoning policies, and density incentives.
- A Community State of Mind – Demand has increased for communities where a “sense of place” is created organically, not prescribed.
- Hipsturbia - The spread of live-work-play style urban planning into suburban communities in order to attract younger residents and become “hip destinations.” Important features include transport, walkability, and abundant shops, restaurants, and recreation.
- Boomers and Beyond – Baby boomers can expect to stay active and live longer, live in downtowns or hipsturbs, and continue to work past retirement age.
- ESG: A Sustainable Trend – Strong interest in and adoption of environmentally and socially conscious business practices, especially among millennials.
- March of Technology: The What and When of Disruption – Technology is affecting most property types, and technological sophistication is expected at the property and management levels.
- Infrastructure: Washington Fumbles; States and Cities Pick Up the Ball – Real estate professionals will find opportunity in states and localities that commit to infrastructure improvements.
In addition to the top five markets—Austin, Raleigh/Durham, Nashville, Charlotte, and Boston—the most favorable markets in the Emerging Trends report include Dallas/Fort Worth, Orlando, Atlanta, Los Angeles, Seattle, and Tampa/St. Petersburg, Fla. The report notes that each of these markets have positioned themselves as “interesting, lively places with ample employment opportunities and a good quality of life.”
To reflect the trend of “new menus” for markets, ULI has added three new market categories this year.
- Major Capital Magnets, including but not limited to Manhattan, Chicago, Miami, and Phoenix, have accounted for 17% of U.S. transactions over the past three years.
- Stalwarts, Surprises and Determined Competitors, including but not limited to Philadelphia, Las Vegas, Minneapolis/St. Paul, and the District of Columbia, have both a strong track record of capital inflows and recent solid transaction volume.
- Treasures Ripe for Discovery, including but not limited to Jacksonville, Des Moines, Boise, and Oklahoma City, all have populations over 1 million and double-digit growth rates.
While the industrial/distribution sectors are ranked highest for investment and development, multifamily and single-family remain highly favored. Office and hotels are less favored.
The full report can be found here.