Emerging Trends in Real Estate 2017 Playing for Advantage, Guarding the Flank
Rational fundamentals Opportunities remain, but be wary Competitive market
PwC ULI Outlook on Trends 38th 500/1,500 Who? A record total San Antonio Thank You!
? How would you characterize the expected profitability of your real estate business in 2017? A. Good-Excellent B. Fair C. Abysmal-Poor
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
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 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Abysmal poor Fair Good excellent 6
Expected profitability 2017 1.9% 16.8% 81.3% Abysmal - poor Fair Good - Excellent Emerging Trends in Real Estate 2017 7
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
A Kinder, Gentler Real Estate Cycle? Currently 92 months of growth. Will cycle go 120 months? 9
A Kinder Gentler Real Estate Cycle? Where is the new commercial supply? Vacancy % 16.0 14.0 12.0 Vacancy Completions % 5.0 4.5 4.0 3.5 10.0 8.0 6.0 80 00 average 3.0 2.5 2.0 4.0 2.0-01 16 average Completions 1980 1985 1990 1995 2000 2005 2010 15 16 Vacancy % Completions as % of Inventory Average 1980-2001 Average 2001-2016 1.5 1.0 0.5 - Reis, Inc : Sum of industrial, office and retail property 10
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
2017 potential best bets 1. Be a problem solver in the middle of the capital stack Emerging Trends in Real Estate 2017 12
Optionality: the New Flexibility 13
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
Optionality-the New flexibility Optionality Not just one user profile 15
Optionality-the New flexibility Optionality At the same time, not just one use E(verything)-loft. Mixing uses. Flexibility. Washington Post 16
Labor Scarcity reflected in Construction Costs Crossover Point Millennials -> Boomers -> 17
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
Labor Scarcity reflected in Construction Costs Construction employment volatility Labor scarcity in construction costs 8.00 7.50 7.00 6.50 6.00 3.15 million jobs added in 168 months 1.21 million added in 67 months 5.50 5.00 2.28 million jobs lost in 56 months 4.50 4.00 Recession Construction Emp Bureau of Labor Statistics 19
Labor Scarcity reflected in Construction Costs Construction labor gets hard to find Labor scarcity in construction costs 12-Month moving average % 25.0 20.0 Construction unemployment rate $1,200 $1,150 $1,100 15.0 10.0 5.0 Weekly earnings $1,050 $1,000 $950 $900 $850 0.0 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
Labor Scarcity reflected in Construction Costs So what is the solution? Training? Wages? Immigration? Labor scarcity in construction costs 21
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 2017 22
Housing affordability: Local Government Steps Up 23
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 225 200 175 150 125 100 75 50 25 0 Median HH Income Median Existing Home Prices Affordability National Association of Realtors, Bureau of Economic Analysis 24
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 1,000 800 600 400 200-2,000 - (2,000) (4,000) (6,000) (8,000) Cumulative Surplus/Deficit Hhouseholds Housing Completions US Census Bureau 25
Housing affordability: Local Government Steps Up Housing affordability Household formation > new supply Shortfall of 7 million 26
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
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
Ready for Augmented Reality? 29
Ready for Augmented Reality? Ready for augmented reality? Ready for augmented reality? 30
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
Blockchain For 21 st -Century RE 32
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
Blockchain for 21 st -Century Real Estate It could be here before you know it Blockchain 34
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 2017 35
Markets to watch 36
Markets to Watch A story in every market Good Fair Challenged Emerging Trends in Real Estate 2017 37
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 38
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
2017 Local Outlook: San Antonio 5 4 +21% 3 2 1 0 Capital Availability Local Economy Development Redevelopment Opportunities Public Private Investment Investor Demand Average National Average
2017 Sector Outlook: San Antonio 4 San Antonio National 3 2 1 0 Housing Industrial Multifamily Retail Hotel Office
2017 South: Local Economy 5 4 3 2 1 0
2017 South: Investor Demand 5 4 3 2 1 0
2017 South: Capital Availability 5 4 3 2 1 0
2017 South: Development/Redevelopment Opportunities 4 3 2 1 0
2017 South: Public Private Investments 4 3 2 1 0
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