The 2020 MAAR Commercial Summit
February 20, 2020
Emerging Trends inReal Estate 2020
PwC
Market Sentiment; Still positive, but are we seeing some diversity in opinion?
Emerging Trends in Real Estate 2020
16/ ULI
PwC
Is this what an extended
expansion looks like?
• Abysmal to poor is up slightly, but
still a very small percent of the total
• Some moderation is expected as
those expecting a fair outcome in
2020 rises to 22.6%
• Outlook still shows some confidence
as those expecting good rises each
year
• Since 2016 the excellent outlook has
been cut in half
2020 Expected Profitability
Emerging Trends in Real Estate 2020
17
15.6% 16.8% 19.3% 20.4% 22.6%
57.2%61.5%
62.8% 61.8%63.6%
25.7%19.8% 16.8% 17.0%
12.6%
2016 2017 2018 2019 2020
Abysmal Poor Fair Good Excellent
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PwC
23% 23%
What is behind the change of heart?
1. Economy – 36%
2. Fundamentals – 29%
3. Government – 14%
4. Capital markets – 11%
5. Strategy shift – 5%
1. Strategy shift – 28%
2. Fundamentals – 28%
3. Internal changes – 22%
4. Economy – 16%
5. Capital markets – 6%
Emerging Trends in Real Estate 2020
18
Reasons given for change in expectations from 2019
/ ULI
Lower Higher
PwC
New Worries?
Coronavirus
Election cycle begins
Geopolitics
Social Unrest
Emerging Trends in Real Estate 2020
19
PwC
Let’s not talk ourselves into a recession, but we do need to keep an eye on the possibility
Emerging Trends in Real Estate 2020
20/ ULI
PwC
Post WWII average annual GDP growth
3.2% 2.0% 2.2%
Key numbers to consider
21
Consensus forecast for average annual GDP growth over the next 5 years
Memphis average annual GDP growth over the past 2 years
Emerging Trends in Real Estate 2020
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PwC
Personal consumption expenditures
Goods
Durable
Non durable
Services
Private domestic Investment
Fixed investment
Non residential
Residential
Change in private inventories
Net exports of goods and services
Exports
Imports
Government consumption expenditures and gross investment
Federal
National defense
Nondefense
State and local
The danger in relying on averages…
22
Emerging Trends in Real Estate 2020
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C
+ I
+ G
+/- X
PwC
72.9%Average percent of
survey respondents
that recommend
either buying or
holding in 202039.3%
40.7%
47.8%
52.1%
56.8%
MEDICAL OFFICE
DATA CENTER
SENIOR HOUSING
WORKFORCE HOUSING
FULFILLMENT CENTERS
Top “Buy” recommendations
What property types do survey respondents think will be winners in 2020?
23
Emerging Trends in Real Estate 2020
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PwC
3.01 3.08 3.103.26
2.54
2.93 2.932.77 2.76
3.59
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Value-addinvestments
Development Opportunisticinvestments
Redevelopment Core investments
2019 2020
Prospects by investment category/strategy 2020
24
Survey respondents more risk averse than in 2019 survey
Emerging Trends in Real Estate 2020
Survey respondents cited
the length of the current
economic expansion,
expectations for slower
economic growth and
concerns for potential
oversupply as reasons to
focus more on core
investments in 2020
PwC
The flow of capital into real estate is both a blessing and a curse
Emerging Trends in Real Estate 2020
25/ ULI
PwC
Last time we talked about
TINA
PwC
Emerging Trends in Real Estate 2020
26
2007
/ ULI
A few assumptions that may have gone wrong
• Unrealistic rent growth assumptions
• Further cap rate compression
• Continued demand
PwC
2019
Lessons learned! Maybe we are a little more restrained this time around
Emerging Trends in Real Estate 2020
27/ ULI
PwC
57.5%Average percent of
all property types
that survey
respondents feel are
fairly priced
47.5%
50.3%
58.3%
58.3%
68.7%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
HIGH STREET RETAIL
CBD OFFICE
LUXURY HOTELS
LIMITED-SERVICE HOTELS
LUXURY APARTMENTS
% Considered overpriced by property type
Column1
Despite record high property values, market doesn’t consider them too out of line
28
Emerging Trends in Real Estate 2020
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PwC
Cities that have invested in their infrastructure are clearly seeing an economic advantage
DateEmerging Trends in Real Estate 2020
29
Washington stumbles; States
and Cities pick up the ball
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PwC
81%Of Emerging Trends survey
respondents feel that transportation
related infrastructure investment
would have the greatest impact on
the real estate market
What type of infrastructure investment would have the greatest impact on the real estate market
Emerging Trends in Real Estate 2020
30
1.7%
3.6%
6.5%
7.2%
7.5%
35.5%
38.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
Affordable Housing
Education/Environmental/Amenities
Energy/Utilities
Technology
Air/Rail/Port
Mass Transit
Roads/Bridges
Percent of Respondents
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PwC 31
Emerging Trends in Real Estate 2020
Top 20 Markets for 2020 Market PriceA rising number of choices appealing to many appetites
Major Capital Magnets SeasonalOld favorites that we keeps us coming back
Determined Competitors Mixed PricingFamiliar choices that may hide a hidden kick
Aligning Expectations Fair PricingChoices that are delivering what they promise
Treasures Ripe for Discovery Mixed PricingAn oyster with a pearl or tomorrow’s favorite today
Potpourri: Thrifty Choices, Boutiques, and Special Situations Ala CarteYou may be pleasantly surprised what you’ll find
Market Menu“ One size doesn’t fit all
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PwC
Top 20 Markets
32
Emerging Trends in Real Estate 2020
#1 Austin
#2 Triangle Region, NC#3 Nashville
#7 Orlando
#4 Charlotte
#5 Boston
#6 Dallas/Fort Worth
#8 Atlanta
#9 Los Angeles
#10 Seattle
#11 Tampa/St. Petersburg
#12 San Francisco#13 San Jose #14 Northern VA
#15 Brooklyn
#16 Indianapolis
#17 Denver
#18 Orange County#19 Charleston
#20 Portland
❑ Heavily weighted toward growth and the Southeast
❑ More diverse and reflect recent volatility
/ ULI
PwC
BoutiqueMarkets
33
Emerging Trends in Real Estate 2020
New Orleans
St. Louis
Memphis
Virginia Beach
Milwaukee
Hartford
❑ Diverse market set
❑ Investment below expectations
❑ May be transitioning economies
❑ Specialized knowledge is a distinct advantage
❑ Dominated by local/regional market participants
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PwC
High growth or low growth, Southeast or Midwest, everyone is talking about some form of housing affordability
Emerging Trends in Real Estate 2020
34
Housing: The Great Unraveling
/ ULI
PwC
Political climate is leading to a rise in rent control rules
35
Concern that areas that enact rent control will inadvertently slow new investment in existing housing stock and slow the development of new housing
Emerging Tends in Real Estate 2020
PwC
Housing shortfall
36
Household formations easily outpace new supply
Emerging Trends in Real Estate 2020
(4,000,000)
(3,500,000)
(3,000,000)
(2,500,000)
(2,000,000)
(1,500,000)
(1,000,000)
(500,000)
-
500,000
1,000,000
1,500,000
Units
Housing Surplus/(Deficit)
Housing Surplus/(Deficit)
❑ A simple analysis that doesn’t even
address geographic specifics, but clearly
points to the depth of the problem
❑ Demographic and economic factors are
driving household formations
❑ Demographic and economic factors are
making it difficult for the housing industry to
add units at the required rate
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PwC
Searching for a feeling of place
Emerging Trends in Real Estate 2020
37
While technology and the gig economy have given us the
tools to work from anywhere, human nature seems to
crave a sense of community. This is having an impact on
the real estate industry as well
❑ Employers are finding that creating a sense of
community is a benefit in the attraction and retention of
employees
❑ Multifamily properties are substituting unit amenities
with community amenities to appeal to tenants
❑ Landlords that can create a sense of community in their
buildings find it easier to attract and retain tenants
❑ Neighborhoods are looking to attract the right buildings
that will be an anchor to developing a community feel in
the surrounding area
/ ULI
PwC
1960’s interpretation of the open office
concept
1980’s interpretation of a private office
concept
Today’s interpretation of collaboration
space
Remember when it was just work space?
Emerging Trends in Real Estate 2020
38/ ULI
PwC
One work space does not fit all work
Tenants want space to address different goals
• Collaboration in formal and informal settings
• Quiet space for individualized work
• Available space for hotelling workers
• Flexible space that can be utilized to house staff on a
temporary basis
• Space where employees can relax, eat, socialize
It is all about work process
Emerging Trends in Real Estate 2020
39/ ULI
PwC
Community doesn’t end at the workplace
40
Emerging Trends in Real Estate 2020
/ ULI
Tenants Building Neighborhood
PwC
Suburbs are becoming cool again
Emerging Trends in Real Estate 2020
41
The expectation that Millennials would begin to
move to the suburbs has become a reality. This
generation however, is putting their own spin on
the suburbs they are choosing.
❑ Suburbs that are in favor offer many of the
same amenities that drew the generation to
the urban core
❑ Many of these suburbs are also gentrifying
to meet the needs of the new residents
❑ “You can’t be a suburb of nowhere” –
Suburbs in markets with strong urban cores
are seeing the most growth
/ ULI
PwC
Cool Suburbs
42
Emerging Trends in Real Estate 2020
/ ULI
Bellevue, WA
Beaverton, OR
Maplewood, NJ
Denton, TX
Alexandria, VA
Decatur, GA
Somerville, MA
Arvada, CO
Kirkwood, MO
Belmont, NCPasadena, CA
Winter Park, FL
Round Rock, TX
Alameda, CAEllicott City , MD
Royal Oak, MI
Media, PAEvanston, IL
Source: Apartment therapy
PwC
Big surprise! The boomers may not be doing what we thought they would, what will be the impacts on following generations?
Emerging Trend in Real Estate 2020
43/ ULI
PwC
22%The percent of total population over
65 in 2046. The year the first
millennial will turn 65
35.00
41.74
72.68
83.78
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045
% o
f Tota
l P
op
ula
tion
(mill
ion
s)
Population over 65
% of Total Population
First Baby
Boomers turn 65
Population over 65 on the rise
44
Emerging Trends in Real Estate 2020
First Gen Xers
turn 65First Millennials
turn 65
Source: US Census Bureau, Moody’s Analytics/ ULI
PwC
Sustainable and green building has been so successful, that ESG just seems like the natural progression of these ideals
DateEmerging Trends in Real Estate 2020
45/ ULI
PwC
$30 Trillion end of 2018
• Up 34% since 2016
• Europe = $14.1 Trillion
• United States = $12.0 Trillion
• Up 38% since 2016
Cities with Zero Carbon Initiative Goals
• Over 100 cities have announced climate targets
• New York City – Climate Mobilization and Local Law 97
• Los Angeles – Green New Deal
Reasons for ESG Investing
• Client demand
• Fulfill mission or values
• Pursue social or environmental benefits
• Improve returns
• Minimize risks
• Fulfill fiduciary duties
Factors influencing the ESG market
46
Emerging Trends in Real Estate 2020
PwC
List of ESG issues considered by private equity investors
89% 87%83%
76% 76% 75%71% 71%
62% 61% 60% 57%
47% 47%41%
37% 36%29%
13%
47
More than just green buildings, areas of concern range from ethics to personnel management
DatePresentation Title
PwC
The ultimate goal of implementing technology is to make the whole equal more than the sum of the parts
Emerging Trends in Real Estate 2020
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PwC
We continue to generate more data every year!
49
Emerging Trends in Real Estate 2020
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PwC
How technology is being used today
Visualization • Seeing how things are going to happen
Facilitation • Making life easier for tenants
Collaboration • Bringing people and processes together
Efficiency • Improve operational processes
Decisions • Using data to enhance decision making
50
Emerging Trends in Real Estate 2020
/ ULI
PwC
5G will enhance speed and reliability
The increased speed and latency provided by 5G will make
a number of technologies viable
• Increased broadband access
• Autonomous vehicles/smart infrastructure
• Control of remote devices
• Machine learning and enhanced IOT (internet of things)
Will 5G allow current and existing technologies to have a real impact?
Emerging Trends in Real Estate 2020
51
Date
/ ULI
PwC
What you don’t want to see when…
52
Emerging Trends in Real Estate 2020
PwC
A confident industry
Slower but more sustainable growth?
Strategy will be more important as there will be more over/under performers
Change will be ongoing
Emerging Trends in Real Estate 2020
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/ ULI.org
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