Emerging Trends in Real Estate: Investors Still Favor U.S. CRE

U.S. commercial real estate remains a favored asset class even as economic uncertainty looms, said the Urban Land Institute and PwC.

“Even though we are late in the expansion cycle, volatility in global financial markets coupled with global geopolitical instability continues to drive investors toward U.S. real estate,” said PwC Partner Mitch Roschelle. “The asset class remains desirable as investors seek predictable cash flows from tangible investments.”

PwC, New York, and ULI, Washington, D.C., released their annual Emerging Trends in Real Estate industry forecast on Friday. The report cited adaptability to change and discipline as key factors in the CRE sector’s ability to withstand an economic downturn and the possibility of softer real estate demand in the years ahead.

The report noted the industrial/distribution sector once again ranked highest for investment and development prospects, reflecting steady e-commerce growth; data centers are garnering more investor interest for the same reason. Multifamily housing is “highly favored” as housing needs continue to change for Millennials and Baby Boomers. Less favorable property types include office space, hotels and retail in that order.

ULI Global Chairman W. Edward Walter noted recent real estate development has been dominated by the creative mixed-use projects that have revived many urban areas. “Going forward, those who continue to innovate with spaces that can be easily be repurposed as cities evolve will have a competitive edge,” he said. “Staying ahead of change means being flexible and adaptable.”

Other trends PwC and ULI highlighted included:

–The Siren Call of “TINA”–There Is No Alternative. The urge to deploy capital simply because it is available is best avoided, ULI and PwC noted. “A surfeit of capital desperately seeking placement is the very definition of a bubble that remains unrecognized until it bursts,” the report said.

–“Hipsturbia”–The live-work-play districts that spurred 24-hour downtowns in the 1990s have spread to many suburban communities seeking to become hip destinations, nicknamed “hipsturbs.” The report cited three key to successful hipsturbs: transit access, walkability and abundant retail and recreation options.

–Aging Baby Boomers–Baby Boomers today expect to stay active while living longer. This has positive implications for housing demand in downtowns and hipsturbs as well as for offices, as many aging Boomers may choose to keep working or pursue second careers.

–Environmental, Social and Governance principles–“There is a growing commitment to the tenets of ESG principles among corporations in general and real estate in particular,” the report said. “Sustainability evaluation is becoming a ‘checklist item’ for institutional investors domestically and worldwide. Strong interest by millennials in environmentally and socially conscious business practices is a major factor driving this trend.”