2016 Real Estate Trends and Predictions
Posted On Monday, December 14, 2015
You may be wondering the New Year holds when it comes to real estate in 2016. One can never really know for sure until it happens, but with a little research, data analysis and expert opinion, you can get a handle on the hot topics for the upcoming year.
So what do you need to know about what's trending in real estate for 2016? We turned to PricewaterhouseCoopers (PwC) and the Urban Land Institute's (ULI) recently released annual "Emerging Trends in Real Estate" report for 2016 to analyze what the real estate outlook and predictions are for next year.
They covered a lot, but we're going to list their top findings and a short recap of each trend. Feel free to reference the full report for more detailed information.
2016 Real Estate Trends & Predictions
1. 18-Hour Cityscape
18-hour cities were trending in 2015 and continue to be on the watchlist for 2016. The growing popularity of "18-hour cities," otherwise known as secondary markets in comparison to the 24-hour traditional "gateway cities" are becoming increasingly desirable. These hot markets appeal to a variety of buyers, as they can offer the amenities that come with a larger urban setting at a more affordable price. The report predicted the 18-hour city trend will only get stronger next year.
Key Quote: The 18-hour cities have been consistently making headway in replicating pieces of what makes the gateway cities so attractive. The development and application of technology make it possible for these markets to offer the benefits of a larger urban area at a significantly lower cost. In addition, a number of the markets in the top 20 rankings of this year�s survey are consistently tagged as "cool� markets that are expanding on their own unique culture.
2. Long Live SuburbiaAccording to the report, Gen Y millennials choosing to defer marriage and family creation will slowly start to take those major life steps and embrace the suburbs. However, the suburbs that will appeal to millennials down the road won't look like the "suburbs of their parents." Instead, popular suburban locales will feature the benefits of both urban and suburban areas, including transit-oriented and mixed-use properties. In what the report authors consider the country's top 40 metro areas, 84% of all jobs are located outside of the center-city core, "and that�s the basis for optimism for the suburban future."
Key Quote: The suburbs are a long way from dead,� said one interviewee emphatically. Another industry veteran counseled, "There are only about ten dynamic downtowns in the county; the rest of the areas, people are in the suburbs.� As prices have risen in the core gateway markets, it is apparent that a fresh look at suburban opportunities is gaining favor.
3. Office SpaceThe work portion of the the "live/work/play" balance is ever evolving. The office sector has seen "steady growth" as employment numbers continue to rise. Redesign of office space, changes in work style, and keeping and attracting talent are all factors in this small but steadily rising segment of the industry.
Key Quote: Redesign of office space to do away with walls and cubicles�and the rethinking of "work� that goes along with it�remain prominent in the minds of our interviewees. It is no longer an issue of overall space per employee compression. Some see the redesign as a way to accommodate an alteration in work style itself; others view it as a workforce capture tool�key to attracting and keeping the desired talent; and for others, it�s both. And hip, cool open spaces are not just for startups. Corporate space is accommodating a mix of open areas and a variety of private or semiprivate configurations.
4. Housing Options on the RiseThe report indicates that although the rental industry will continue to have the upper hand over single-family in the short-term, housing demand will take off across all residential sectors in the long-term. And that influx of buyers will also come with more demand for new and alternative housing options. What are they? Co-housing, micro-housing, and the student-housing model are among them. They address the "scarcity and lifestyle issues" that now drive household preferences.
Key Quote: Economic and demographic factors are influencing the housing market as it deals with issues around providing the type of housing desired by the peak of the baby boom generation, aging millennials, a population making an urban/suburban choice, and finding a way to provide affordable housing to support a vibrant workforce.
5. No Parking?Many trends collide to influence this prediction. Are parking lots an unnecessary and underused space when it comes to statistics that show that miles traveled by car by those under age 35 are down, the decline of high school seniors with drivers licenses on the decline, and the increased use of mass transit? Maybe. The report indicates that although most respondents said major parking pattern changes are "years away," real estate professionals should keep the growing trend in mind.
Key Quote: Even if we still have a ways to go before we reach the point where we forget that the gas is on the right and the brake is on the left, we will be seeing change trending in the parking patterns of real estate developments. "How cool would it be,� that development consultant mused, "if I looked out my window and saw a park instead of a parking lot?�
6. Improving InfrastructureThe most recent American Society of Civil Engineers (ASCE) Infrastructure Report Card gave the U.S. a D+, said the "conventional approach to infrastructure improvement is utterly disheartening." Due to this failure in traditional practices to fix the nation's struggling infrastructure, some groups and cities are starting to find more creative solutions. High-frequency bus networks and green infrastructure are among them.
Key Quote: As the need to do more with little (let�s not concede "less�) becomes more acute, a greater attention to innovative solutions to America�s massive infrastructure needs is likely to mark the latter half of this decade and beyond.
7. Food for ThoughtReinvention and reuse of urban spaces, particularly for growing food, should not be undervalued as an upcoming trend. Adaptive use of niche property types is evident and bringing productivity to places that have long been unproductive is an idea that isn't going away. In cities where residents' incomes aren't growing but their desire for fresh food is, the use of urban land to produce food has become a major trend.
Key Quote: What is the "trend� here? Are we likely to see barns and silos dotting our cityscapes? No, that is hardly the point. What is important�and trending�is the new vision that has urban land as that most precious and flexible of resources. The idea that the end of one productive use of a real estate asset spells the extinction of value and the sunsetting of opportunity is an idea whose time is over. Just as the reinvention of the suburbs is an emergent story for the decade ahead, so is the creative adaptation of inner-city uses.
8. Merge or SpecializeThe era of the mid-size company may be coming to an end as companies decide whether to grow through consolidation or downsize to a specialty niche, which are both profitable options. Big projects are still the "domain of big organizations," so firms must decide if trying to obtain those larger projects is worth joining forces with another group. "Firms may find themselves in the middle and will need to choose which side � smaller or larger � they wish to be on," the report said.
Key Quote: If "size matters,� that is not the same as "bigger is better.� The playing field itself is changing. While size and scale have brought advantage over the years, the evolutionary trends in development, equity investment, and lending are showing that "small can be powerful� as well.
9. More Capital, More OptionsCapital flow into U.S. real estate markets has been pouring in at an increasingly rapid rate. For the year ending June 30, for example, total acquisition volume was at $497.4 billion�a 24.6% year-over-year increase. Though experts don't expect that rate to last, investors expect a steady rate of capital available that is equal to or greater than 2015. So where is it going to be invested? The report cites that the new real estate capital will go into alternative assets (18-hour cities), old is new again (renovation and redevelopment), and alternative property types (medical offices, senior housing, data centers).
Key Quote: A broker with a large national office practice told us, "It is an extremely competitive market for placing capital.� That competition is driving money more and more into a discovery process, a process many describe using the term granularity. Drilling down into markets and submarkets, working with smaller assets within the larger markets, specialized property types�these are all examples of the search to identify thriving niche opportunities.
10. Return of the Human ElementThe industry is trending toward adding the human element back in to balance out our reliance on big data and dependence on technology in the world of real estate. The report said the U.S. is currently transitioning from the "dazzle" era of technology to the wise application of it�which is considered a "more difficult task." In a world of exponentially increasing data, ever-changing investment algorithms and hacking threats, we need a "human judgment interface" to temper our use and trust of technology.
Key Quote: The idea that expertise in slicing and dicing numbers is the skill most needed in real estate financial analysis has been exposed as inadequate. The global financial crisis did not get triggered because of a lack of mathematical aptitude. The folks who got us all into trouble knew math just fine. What they lacked was the good judgment to foresee consequences and the conscientious determination to prudently manage to standards other than short-run profits. For such tasks, computers are of little help.
Interested in reading more on the 2016 real estate market outlook? Check out these additional resources.
Top 10 Real Estate Trends for 2016
Top 10 Real Estate Markets to Watch in 2016
Experts Share Real Estate Trends to Watch Out for in 2016
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