Emerging Trends in Real Estate 2017 Playing for Advantage, Guarding the Flank
PwC ULI Outlook on Trends 38th 500/1,500 Who? A record total ULI Charlotte Thank You!
Rational Opportunities Competitive
How would you characterize the expected profitability of your real estate business in 2017? A. Good-Excellent B. Fair C. Abysmal-Poor Emerging Trends in Real Estate 2017
Profitability Outlook 2010 17.7% 60.6% 21.6% Abysmal to Poor Fair Good to Excellent Emerging Trends in Real Estate 2017
Profitability Outlook 1.1% 2015 74.0% 24.9% Abysmal poor Fair Good excellent Emerging Trends in Real Estate 2017
Profitability Outlook 1.1% 2016 84.0% 14.9% Abysmal poor Fair Good excellent Emerging Trends in Real Estate 2017
Profitability Outlook 81.3% 1.9% 16.8% 2017 Abysmal - poor Fair Good - Excellent Emerging Trends in Real Estate 2017
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 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Abysmal poor Fair Good excellent
Buy, Hold, Sell
How would you describe the 2017 real estate market? Here is what 900 respondents said Emerging Trends in Real Estate 2017
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
A Kinder, Gentler Real Estate Cycle?
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
A Kinder Gentler Real Estate Cycle Where is the new commercial supply? Vacancy % Completions % 16.0 Completions 5.0 14.0 12.0 10.0 8.0 Vacancy 80 00 average 4.5 4.0 3.5 3.0 2.5 6.0 4.0 2.0 01 16 average 1980 1985 1990 1995 2000 2005 2010 15 16 Vacancy % Completions as % of Inventory Average 1980-2001 Average 2001-2016 2.0 1.5 1.0 0.5 Reis, Inc : Sum of industrial, office and retail property
A Kinder Gentler Real Estate Cycle A Kinder Gentler Real Estate Cycle? Is the real estate market autocorrecting? Buzzfeed.com
Optionality: the New Flexibility
Optionality-the New flexibility Not just one user profile Optionality
Optionality-the New flexibility Optionality At the same time, not just one use E(verything)-loft Washington Post
Labor Scarcity reflected in Construction Costs
Labor Scarcity reflected in Construction Costs Labor scarcity in construction costs Declining Labor Force Participation Rate Total Exhibit 1-10 Male Female Bureau of Labor Statistics, Current Population Survey ; Moody s Analytics forecasts.
Labor Scarcity reflected in Construction Costs Labor scarcity in construction costs Construction employment volatility 8.00 7.50 7.00 6.50 6.00 5.50 5.00 3.15 million jobs added in 168 months 2.28 million jobs lost in 56 months 1.21 million added in 67 months 4.50 4.00 Recession Construction Emp Bureau of Labor Statistics
Labor Scarcity reflected in Construction Costs Labor scarcity in construction costs Construction labor gets hard to find 12-Month moving average % 25.0 $1,200 20.0 $1,150 $1,100 15.0 $1,050 $1,000 10.0 $950 5.0 $900 $850 0.0 Dec 2000 Dec 2001 Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Recession Construction Unemployment rate Weekly Earnings Dec 2015 $800 Bureau of Labor Statistics
Labor Scarcity reflected in Construction Costs Labor scarcity in construction costs So what is the solution?
2017 potential best bet Take advantage of enhancements in construction technology Emerging Trends in Real Estate 2017
Housing Affordability: Local Government Steps Up
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% Median HH Income Median Existing Home Prices Affordability Affordability 225 200 175 150 125 100 75 50 25 0 National Association of Realtors, Bureau of Economic Analysis
Housing Affordability: Local Government Steps Up Housing affordability Shortage of homes will make it difficult for affordability to see significant improvement 000s SAAR 1,600 1,400 1,200 1,000 800 600 400 200 - Cumulative (000s SAAR) 4,000 2,000 - (2,000) (4,000) (6,000) (8,000) Cumulative Surplus/Deficit Hhouseholds Housing Completions US Census Bureau
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
Housing affordability: Local Government Steps Up Labor scarcity in construction costs So what is the solution? No one solution 14% 14% 14% 14% 14% 14% 14% Local government: Rediscoveries Innovations with NOAH
Markets to watch
Markets to Watch A Story In Every Market Good Fair Challenged Emerging Trends in Real Estate 2017
Markets to Watch The Top 10 2016 2017 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 2017
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 34
2017 Local Outlook: Charlotte 5 4 +2% 3 2 1 0 Investor Demand Capital Availability Development Local Economy Public Private Redevelopment Investment Opportunities Average National Average
2017 Sector Outlook: Charlotte 4 Charlotte National 3 2 1 0 Housing Industrial Multifamily Office Retail Hotel
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