Emerging Trends in Real Estate 2017 Playing for Advantage, Guarding the Flank ULI/PwC Annual Real Estate Outlook November 16, 2016
Emerging Trends in Real Estate 2017 Emerging Trends is the industry s most predictive forecast 38th annual outlook - 10 th anniversary for Canada outlook Based on over 500 interviews and 1,500 surveys of industry leaders - 115 interviews and 246 in Canada Sponsored jointly by PwC and the Urban Land Institute
Market Sentiment 3
Profitability expectations 2017 1.00% US 2017 1.90% 24.70% 16.80% 74.30% 81.30% abysmal to poor fair good to excellent abysmal to poor fair good to excellent Emerging Trends in Real Estate 2017 survey 4
Business prospects 1 2 3 4 5 Abysmal Poor Fair Good Excellent Real estate owners Residential builders/developers Real estate equity investors Commercial real estate developers Real estate investment managers/advisors Real estate services Real estate lenders Real estate security investors 1.0 2.0 3.0 4.0 5.0 2017 2016 Emerging Trends in Real Estate 2017 survey 5
How would you describe the 2017 real estate market? Here is what 900 respondents said Measured Treacherous Uncertain Content Competitive Troublesome Opportunity Growing Risky Confusing Cautious Frenzy Neutral Overheated Emerging Trends in Real Estate 2017 6
Underwriting criteria adjust to the environment Debt Equity Less rigorous 8.9% 30.2% Less rigorous 11.0% 30.7% Remain the same 47.3% 52.2% Remain the same 62.3% 52.8% More rigorous 43.8% 17.6% More rigorous 26.7% 16.5% 0% 10% 20% 30% 40% 50% 60% 0% 20% 40% 60% 80% 2017 2016 2017 2016 Emerging Trends in Real Estate 2017 7
Emerging Trends 8
Trends reflect market sentiment Affordability on the Decline Technology Disruptors Hold a Competitive Advantage Ongoing Oil and Gas Woes More than mixed use, it s about building communities Renting for the Long Term Global Uncertainties Weigh on the Mind Waiting for Deals 9
More than mixed use, it s about building communities ü Focus on mixed use communities rather than stand alone mixed use builidings ü Tenants are demanding dynamic neighborhoods that combine residential, retail, commercial and public spaces ü Can lead to partnerships between experts in different components 10
2017 expected best bets Urban mixed-use developments Emerging Trends in Real Estate 2017 11
Affordability on the decline 2016 Forecast price-to-income ratio Vancouver Toronto Canada Montreal Saskatoon Edmonton Calgary Ottawa Halifax Winnipeg Quebec City 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 TD Economics, Regional Housing Report August 2016 12
Renting for the long term 000s of households 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036 Renters Owners Canada Mortgage and Housing Corporation 13
2017 expected best bets Purpose-built multifamily rentals Emerging Trends in Real Estate 2017 14
Technology disruptors hold a competitive advantage 1 2 3 4 5 Not important Limited importance Average importance Important Great importance Impact on location decision Labor availability Rent Technology readiness Labor Cost Connectivity Proximity to customers Flexibility 4.20 3.99 3.98 3.89 3.82 3.61 3.49 1 2 3 4 5 Emerging Trends in Real Estate 2017 survey 15
Global uncertainties weigh on the mind 1 2 3 4 5 No importance Little importance Moderate importance Considerable importance Great importance Economic/financial issues Job and income growth Interest rates and cost of capital Macroeconomic issues Income inequality Taxes and regulation Global economic Growth 4.32 3.95 3.7 3.66 3.66 3.32 Social/political issues Terrorism/war / epidemics Social inequality Qualified labor availability Government budget issues (local/state/ Immigration Education (cost and availability) 3.72 3.54 3.48 3.33 3.20 2.81 Real estate / development issues Land and construction costs Capital availability Infrastructure Housing cost and availability Sustainability Water regulation Wellness health features 4.3 3.99 3.91 3.87 3.2 2.99 2.63 Sharing economy 2.71 Political landscape 2.77 Extreme weather 2.47 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 Emerging Trends in Real Estate 2017 survey 16
Ongoing oil and gas woes Energy consumption will rebound, but will prices? 900.0 800.0 700.0 600.0 World energy consumption, 1990-2040 (quadrillion Btu) 267.23 282.12 500.0 400.0 238.44 253.94 300.0 200.0 100.0 0.0 236.21 201.06 532.84 450.50 375.01 310.83 154.94 173.59 1990 2000 2012 2020 (f) 2030 (f) 2040 (f) Non-OECD OECD US Energy Information Administration 17
Waiting for deals Debt capital for acquisition Equity capital for investment Oversupplied 23% 52% Oversupplied 59% 68% In balance 62% 38% In balance 31% 26% Undersupplied 14% 11% Undersupplied 11% 6% 0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 2017 2016 2017 2016 Emerging Trends in Real Estate 2017 survey 18
Property Type Outlook 19
Investment outlook 1 2 3 4 5 Abysmal Poor Fair Good Excellent Major sectors Top subsectors for 2017 Industrial/distribution 3.52 3.49 Fulfillment 3.73 Multifamily Single family 3.47 3.34 3.38 3.33 Age restricted housing/ Multifamily 3.71 Hotels 3.45 3.23 Urban/high street retail 3.70 Office 3.28 3.17 Medical Office 3.60 Retail 3.22 3.08 1 2 3 4 5 Midscale hotels 3.37 2017 2016 1 2 3 4 5 Emerging Trends in Real Estate 2017 survey 20
Development outlook 1 2 3 4 5 Abysmal Poor Fair Good Excellent Major sectors Top subsectors for 2017 Industrial/distribution 3.65 3.57 Warehouse 3.96 Multifamily Single family 3.49 3.47 3.32 3.23 Urban/high street retail 3.71 Hotels 3.31 2.89 Age restricted housing/ Multifamily 3.71 Office 2.98 2.85 Medical Office 3.50 Retail 2.76 2.56 1 2 3 4 5 Economy hotels 3.00 2017 2016 1 2 3 4 5 Emerging Trends in Real Estate 2017 survey 21
2017 expected best bets Industrial property Senior housing/ retirement homes Emerging Trends in Real Estate 2017 22
Markets to watch 23
Markets to watch 2017 markets to watch 2012 2013 2014 2015 2016 2017 Vancouver 2 4 4 4 1 1 Toronto 1 3 5 3 2 2 Montreal 7 5 9 6 3 3 Ottawa 5 6 6 5 4 4 Saskatoon 6 7 3 8 5 5 Winnipeg 9 8 7 7 6 6 Halifax 8 9 8 9 8 7 Edmonton 4 2 2 2 7 8 Calgary 3 1 1 1 9 9 Emerging Trends in Real Estate 2017 survey 24
2017 expected best bets Industrial property Purpose-built multifamily rentals Urban mixed-use developments Senior housing/ retirement homes Emerging Trends in Real Estate 2017 25
2017 US Emerging Trends Summary Top trends Ø Are real estate cycles moderating? Ø Optionality Ø Housing affordability Ø Shortage of construction labor Ø Civic minded development Ø Technology enhancements Markets & Property Sectors Ø 18-hour cities continue to attract interest Ø Focus continues to move toward neighborhoods Ø Niche subsectors attract more interest as investors look for yield Expected best bets Ø Providing capital in the middle of the stack Ø Take advantage of adjacency Ø Implement new construction technology Ø Solve the last mile e-commerce equation 26
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