Emerging Trends in Real Estate Navigating at Altitude

Transcription

1 Emerging Trends in Real Estate 2018 Navigating at Altitude

2 Emerging Trends in Real Estate 2018 Navigating at Altitude We are in a long cycle, not in boom/bust. The key to the next few years is to expand horizons, market by market, property type by property type.

3 PwC ULI Outlook on Trends 39th 320/480/1,600 Who? A record total Thank You!

4 How do we feel about 2018? Emerging Trends in Real Estate

5 ? How would you characterize the expected profitability of your real estate business in 2018? A. Good-Excellent B. Fair C. Abysmal-Poor

6 Expected profitability of your business 100% 90% 80% 86.9% 82.2% 79.6% 70% 60% 56.1% 50% 40% 30% 26.2% 20% 10% 0% % 1.1% Abysmal Poor Fair Good Excellent 6

7 Expected profitability of your business Good & Excellent 70.0% 60.0% 60.3% Good 62.8% 50.0% 40.0% 30.0% 32.9% Excellent 28.5% 20.0% 16.8% 10.0% 0.0% 6.4% 2005 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 7

8 What word would you use to describe the 2018 real estate market? Top 5 Competitive Cautious Measured Uncertain Growing Emerging Trends in Real Estate

9 Emerging Trends in 2018 Slow Glide to a Soft Landing Working Smarter and Harder Retail Transforms and Stores Remain Procession of Generations: Gen Z Housing at a Technological Tipping Point It s Different This Time Isn t it? Don t Forget the Boomers PwC 9

10 A Long Glide Path to a Soft Landing PwC 10

11 Long glide path to a soft landing I hate the what inning are we in question. It makes it seem like cycles have to end after a pre-set time has elapsed. Emerging Trends in Real Estate

12 Long glide path to a soft landing 4.5% 4.0% Current expansion, slow by comparison but is it more sustainable? Annual Employment Growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 2009 to Current months months months months months months 0.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Source: NBER, Bureau of Economic Analysis, Bureau of Labor Statistics Annual Real GDP Growth 12

13 Long glide path to a soft landing 180 RCA Commercial Property Price Index, by Sector Office - CBD Apartments Industrial Office Office- Suburban Retail Dec-00 May-01 Oct-01 Mar-02 Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 PwC

14 Long glide path to a soft landing 160 RCA Commercial Property Price Index, by Market Type Major Markets (All Property) Non-Major Markets (All Property) Dec-00 May-01 Oct-01 Mar-02 Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 PwC

15 Working Smarter And Harder PwC 15

16 Working smarter and harder Real estate facilities are not just overhead, but a way to improve not just employee happiness and engagement, but also productivity. Emerging Trends in Real Estate

17 Working smarter and harder Productivity growth continues.at a much lower rate % Average annual growth % Average annual growth Emerging Trends in Real Estate

18 Working smarter and harder Change in Worker Output v Employment Growth by Sector: Exhibit

19 Working smarter and harder Get It s all about ROI and it s human capital smart about the workplace.today it sthat all about the smart well as thereally smartpays building counts theexperience...as most, where investment off Emerging Trends in Real Estate

20 Working smarter and harder 30.00% Percent of Office Inventory by Decade Constructed 25.00% 24.0% 20.00% 15.00% 15.2% 12.9% 12.7% 15.0% 10.00% 7.6% 8.6% 5.00% 4.0% 0.00% Source: U.S. Energy Information Administration, CoStar 1940's 1950's 1960's 1970's 1980's 1990's 2000's 2010's 20

21 Working smarter and harder In 2018, investing Office in what capital you expenditures already have may will need be more to increase important to meet than what changing you tenant may acquire demand Improvement over acquisition? 2.5% 4Qtr moving average 2.0% Office cap ex as a % of market value 1.5% 30-year average Best Bet! Income over potential appreciation 1.0% 0.5% 0.0% 1990 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Source: NCREIF 21

22 Procession of Generations Gen Z PwC 22

23 Procession of Generations.Gen Z Generations Boomers mil Gen X 78.6 mil Millennials 79.6 mil Gen Z 65.1 mil Emerging Trends in Real Estate

24 Procession of Generations.Gen Z It isn t what you don t know that you should be worried about; it s what you think you know..thought we knew.what actually HAPPENED Boomers Retire early & to mild climates Not so fast Gen X Bigger suburban houses Hit by Global Financial Crisis Millennials Urban forever Majority in suburbs already 24

25 Procession of Generations.Gen Z It isn t what you don t know that you should be worried about; it s what you think you know. PwC 25

26 And Don t Forget the Boomers PwC 26

27 And don t forget the boomers Boomers plan to stay in the workforce longer 35.0% Planned Retirement Age 32.0% 30.0% 25.0% 26.0% 27.0% 20.0% 17.0% 15.0% 10.0% Age Age 70+ Age Age % 0.0% Source: Insured Retirement Institute, "Boomer Expectations for Retirement 2017" 27

28 And don t forget the boomers More older workers in the workplace 1994 Ages 65-74: Labor force participation rate 17.2% Best Bet! Senior housing gains momentum % % % 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 Source: Bureau of Labor Statistics 28

29 Housing at a Technological Tipping Point? PwC 29

30 Housing at a technological tipping point I ve been hearing talk about how technology will transform the way builders build homes for 25 years. Now, I look at what s been happening, and for the first time ever, I m thinking it s more than talk Emerging Trends in Real Estate

31 Housing at a technological tipping point Higher sales prices won t guarantee more new homes 80.0% % change in housing units ( f) 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Atlanta Austin Raleigh/Durham Dallas/Fort Worth Nashville Salt Lake City Seattle Minneapolis/St. Paul Miami San Jose Boston Fort Lauderdale Los Angeles 0.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% 180.0% % change in housing price index ( f) Source: US Census Bureau, IHS Insight 31

32 Housing at a technological tipping point Not much relief in sight for home construction costs New Home Price Index (2005 = 100) Best Bet! Evolving housing demand & technologies The Wall Street Journal America's continued construction labor crisis CNN Money The dire need to recruit the next Soaring lumber prices a problem for generation of skilled workers home builders and buyers The price of lumber is soaring, and home builders are worried. Real estate CEO: Record-low housing inventory is 'freaking us out' CNBC Housing inventory continues to drop amid tight credit and a growing tendency toward becoming a Source: US Census Bureau 32

33 Retail transforms and stores remain PwC 33

34 Retail transforms and stores remain Retail isn t dead, it s just changing. Give it some time to adjust Emerging Trends in Real Estate

35 Retail transforms and stores remain E-Commerce continues to rise as a % of total retail sale but.. $120.0 E-Commerce retail Sales (Bn$) $100.0 $80.0 $60.0 $40.0 $20.0 $- E-Commerce % of total sales 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: US Retail Census 35

36 Retail transforms and stores remain 2016 retail sales distribution by channel (billions of $) Best Bet! Non-boring retail Online Sales Fulfilled from Store, $62.2 Electronic Shopping & Mail Order, $445.0 In-Store, $4,278.0 Source: US Census Retail Trade Sales Annual Report, ICSC Research 36

37 Retail transforms and stores remain 2016 Shopping center gross leasable area sf per capita Germany 2.34 UK 2.98 France 3.84 Japan 4.38 Australia Canada United States Source: ICSC, France data 2014, UK data

38 It s different this time the market outlook PwC 38

39 It s different this time.the market outlook Why deal with the uncertainty of # 1 Seattle a global market when there are opportunities in Salt Lake City and San Antonio? # 10 Boston # 8 San Jose # 3 Salt Lake City # 7 Los Angeles # 4 Raleigh/Durham # 9 Nashville # 5 Dallas/Ft. Worth # 2 Austin Emerging Trends in Real Estate 2018 # 6 Fort Lauderdale 39

40 It s different this time.the market outlook The next big market in the survey may be smaller 60,000 55,000 Population (000s) 50,000 45,000 40,000 35,000 30,000 Top ranked market and cumulative population of top 10 markets by year Emerging Trends in Real Estate

41 It s different this time.the market outlook Top Destination Markets for Migration from Primary Markets, Inland Empire Philadelphia Miami/Fort Lauderdale/West Palm Beach Baltimore San Diego San Jose Phoenix Dallas/Ft. Worth Atlanta Houston Sacramento Seattle/Tacoma Norfolk/Virginia Beach Tampa-St. Petersburg-Clearwater, FL Metro Area Orlando Raleigh/Durham Denver Charlotte Portland Austin Nashville PwC Total In-Migration

42 Property type choices skew toward demographics Investment # 1 Fulfillment Centers Development # 1 Fulfillment Centers # 2 Age Restricted Housing #3 Moderate Income Apartments #2 Age Restricted Housing #3 Moderate Income Apartments #4 Affordable Apartments # 4 Medical Office #5 Medical Office #5 Affordable Apartments # 6 Student Housing #6 Student Housing Emerging Trends in Real Estate

43 2018 Local Outlook: Nashville 5 +16% Local Economy Investor Demand Capital Availability Development Redevelopment Opportunities Public Private Investment Average National Average

44 2018 Sector Outlook: Nashville 5 Nashville National Housing Office Industrial Hotel Retail Multifamily

45 2018 South: Local Economy

46 Benchmarking Nashville Population Millennial Growth over 5 years 5 yr annual employment change Cost of Doing Business Nashville % 108% 98% Austin Raleigh Charlotte Tampa

47 Thank you, and now our panel! Download your copy of Emerging Trends in Real Estate 2018 uli.org/et18 Emerging Trends in Real Estate