Emerging Trends in Real Estate Playing for Advantage, Guarding the Flank

Transcription

1 Emerging Trends in Real Estate 2017 Playing for Advantage, Guarding the Flank

2 Rational fundamentals Opportunities remain, but be wary Competitive market

3 PwC ULI Outlook on Trends 38th 500/1,500 Who? A record total San Antonio Thank You!

4 ? How would you characterize the expected profitability of your real estate business in 2017? A. Good-Excellent B. Fair C. Abysmal-Poor

5 How would you describe the 2017 real estate market? Here is what 900 respondents said Measured Treacherous Uncertain Content Competitive Balanced Risky Confusing Troublesome Cautious Opportunity Growing Frenzy Neutral Overheated Emerging Trends in Real Estate 2017

6 Profitability expectations hitting a plateau? 100.0% 90.0% 80.0% Good - excellent 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Fair Abysmal - poor Abysmal poor Fair Good excellent 6

7 Expected profitability % 16.8% 81.3% Abysmal - poor Fair Good - Excellent Emerging Trends in Real Estate

8 Emerging Trends in 2017 A Kinder Gentler Real Estate Cycle? Optionality: the new Flexibility Labor Scarcity reflected in Construction Costs Housing affordability: Local Government Steps Up Blockchain for 21 st -Century Real Estate Ready for Augmented Reality? 8

9 A Kinder, Gentler Real Estate Cycle? Currently 92 months of growth. Will cycle go 120 months? 9

10 A Kinder Gentler Real Estate Cycle? Where is the new commercial supply? Vacancy % Vacancy Completions % average average Completions Vacancy % Completions as % of Inventory Average Average Reis, Inc : Sum of industrial, office and retail property 10

11 A Kinder Gentler Real Estate Cycle? A Kinder Gentler Real Estate Cycle? Market begins to moderate on its own Banks and CRE Lending CRE Transaction Volume 30% 25% 20% % of Banks reporting Stronger Loan Demand 60% 50% 40% 15% 30% 10% 20% 5% 0% -5% % of Banks Reporting Tightening Underwriting Standards 10% 0% -10% Y/Y change in $ volume -10% -20% -15% -30% Federal Reserve Board: Survey of Current Lending Conditions, Real Capital Analytics 11

12 2017 potential best bets 1. Be a problem solver in the middle of the capital stack Emerging Trends in Real Estate

13 Optionality: the New Flexibility 13

14 Optionality-the New flexibility Optionality Not just one use/user profile --C0-work space --Gig workers --Sole proprietors --WeWorks and LiquidSpace --Live/work spaces --Mixed use --Multifamily rentals ready for condos --Retail ready for restaurants --Parking ready for? 14

15 Optionality-the New flexibility Optionality Not just one user profile 15

16 Optionality-the New flexibility Optionality At the same time, not just one use E(verything)-loft. Mixing uses. Flexibility. Washington Post 16

17 Labor Scarcity reflected in Construction Costs Crossover Point Millennials -> Boomers -> 17

18 Labor Scarcity reflected in Construction Costs Declining Labor Force Participation Rate Labor scarcity in construction costs Exhibit 1-10 Total Male Female Bureau of Labor Statistics, Current Population Survey ; Moody s Analytics forecasts. 18

19 Labor Scarcity reflected in Construction Costs Construction employment volatility Labor scarcity in construction costs million jobs added in 168 months 1.21 million added in 67 months million jobs lost in 56 months Recession Construction Emp Bureau of Labor Statistics 19

20 Labor Scarcity reflected in Construction Costs Construction labor gets hard to find Labor scarcity in construction costs 12-Month moving average % Construction unemployment rate $1,200 $1,150 $1, Weekly earnings $1,050 $1,000 $950 $900 $ Dec 2000 Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Recession Construction Unemployment rate Weekly Earnings Dec 2015 $800 Bureau of Labor Statistics 20

21 Labor Scarcity reflected in Construction Costs So what is the solution? Training? Wages? Immigration? Labor scarcity in construction costs 21

22 2017 potential best bets Take advantage of enhancements in construction technology -Pre-fab construction. -3-D printing of building components. -Construction management software. -Augmented reality to reduce change orders. Emerging Trends in Real Estate

23 Housing affordability: Local Government Steps Up 23

24 Housing affordability: Local Government Steps Up Housing affordability Income growth just can t keep up with existing home prices Y/Y Change 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Affordability Median HH Income Median Existing Home Prices Affordability National Association of Realtors, Bureau of Economic Analysis 24

25 Housing affordability: Local Government Steps Up Shortage of homes will make it difficult for affordability to see significant improvement 000s SAAR 1,600 Housing affordability Cumulative (000s SAAR) 4,000 1,400 1,200 1, ,000 - (2,000) (4,000) (6,000) (8,000) Cumulative Surplus/Deficit Hhouseholds Housing Completions US Census Bureau 25

26 Housing affordability: Local Government Steps Up Housing affordability Household formation > new supply Shortfall of 7 million 26

27 Housing affordability: Local Government Steps Up Housing affordability Housing costs are an increasing burden in more markets Payment < 30% of HH Income Payment >30% and < 45% of HH Income Payment > 45% of HH Income National Association of Realtors, Bureau of Economic Analysis, PwC Research 27

28 Housing affordability: Local Government Steps Up So what is the solution? No one solution Labor scarcity in construction costs Preservation of Naturally Occurring Affordable Housing Transfer of development rights Inclusionary zoning Parking reductions Addressing NIMBYism

29 Ready for Augmented Reality? 29

30 Ready for Augmented Reality? Ready for augmented reality? Ready for augmented reality? 30

31 Ready for Augmented Reality? Augmented reality potential market impact Ready for augmented reality? Projected revenue by industry (total $35.0 billion) Videogames $11.6b Healthcare $5.1b Engineering $4.7b Live events $4.1b Video entertainment $3.2b Real estate $2.6b Retail $1.6b Military $1.4b Education $0.7b Real Estate $2.6 $1.4 $1.6 $0.7 $3.2 $4.1 $4.7 $11.6 $5.1 Goldman Sachs 31

32 Blockchain For 21 st -Century RE 32

33 Blockchain for 21 st -Century Real Estate Blockchain technology continues to gain momentum Global interest Research Bank experimentation Consortium efforts Venture capital Central banks World Economic Forum 33

34 Blockchain for 21 st -Century Real Estate It could be here before you know it Blockchain 34

35 2017 potential best bets Be a problem solver in the middle of the capital stack Adjacencies Place yourself in the shade of the growing tree Take advantage of enhancements in construction technology Solve the e-commerce last mile equation Emerging Trends in Real Estate

36 Markets to watch 36

37 Markets to Watch A story in every market Good Fair Challenged Emerging Trends in Real Estate

38 Markets to watch The top Market Classification 2 1 Austin 18 - Hour 1 2 Dallas/Fort Worth 18 - Hour 9 3 Portland 18 - Hour 4 4 Seattle 18 - Hour 10 5 Los Angeles Gateway 7 6 Nashville 18-Hour 11 7 Raleigh/Durham 18-Hour/Suburban 14 8 Orange County 18-Hour/Suburban 3 9 Charlotte 18 - Hour 8 10 San Francisco Gateway Emerging Trends in Real Estate

39 2017 Property Type Investment Outlook Fulfillment Center Warehouse Urban/high street retail Age-restricted housing/multifamily Medical office Moderate/workforce apartments Affordable apartments Central city office Neighborhood shopping centers Student housing Lifestyle/entertainment centers Midscale hotels Upscale hotels R&D High-income apartments Economy hotels Flex Single-family rental Luxury hotels Manufacturing Outlet centers Suburban office Power centers Regional mall Emerging Trends in Real Estate 2017 Poor Fair Excellent 39

40 2017 Local Outlook: San Antonio % Capital Availability Local Economy Development Redevelopment Opportunities Public Private Investment Investor Demand Average National Average

41 2017 Sector Outlook: San Antonio 4 San Antonio National Housing Industrial Multifamily Retail Hotel Office

42 2017 South: Local Economy

43 2017 South: Investor Demand

44 2017 South: Capital Availability

45 2017 South: Development/Redevelopment Opportunities

46 2017 South: Public Private Investments

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