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Emerging Trends in Real Estate 2017 Playing for Advantage, Guarding the Flank
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
Emerging Trends in Real Estate 2017
How would you characterize the expected profitability of your real estate business in 2017?
A. Good-ExcellentB. FairC. Abysmal-Poor
Emerging Trends in Real Estate 2017
Profitability Outlook
21.6%
60.6%
17.7%
2010Abysmal to Poor
Fair
Good to Excellent
Emerging Trends in Real Estate 2017
Profitability Outlook
1.1%
24.9%
74.0%
2015
Abysmal–poorFairGood–excellent
Emerging Trends in Real Estate 2017
Profitability Outlook
1.1%
14.9%
84.0%
2016
Abysmal–poorFairGood–excellent
1.9%
16.8%
81.3%
2017Abysmal -poorFair
Good -Excellent
Emerging Trends in Real Estate 2017
Profitability Outlook
Expectations Hitting a Plateau?
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Abysmal–poor Fair Good–excellent
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?
Market Begins to Moderate on its Own
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Banks and CRE Lending
% of Banks reporting Stronger Loan Demand
% of Banks Reporting Tightening
Underwriting Standards
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
CRE Transaction Volume
Y/Y change in $ volume
A Kinder Gentler Real Estate Cycle?
Federal Reserve Board: Survey of Current Lending Conditions, Real Capital Analytics
A Kinder Gentler Real Estate Cycle
Where is the new commercial supply?
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1980 1985 1990 1995 2000 2005 2010 15 16
Vacancy % Completions as % of Inventory Average 1980 - 2001 Average 2001 - 2016
Vacancy % Completions %
Vacancy
01 – 16 average
80 – 00 average
Completions
Reis, Inc : Sum of industrial, office and retail property
A Kinder Gentler Real Estate Cycle
Is the real estate market autocorrecting? A Kinder Gentler Real Estate Cycle?
Buzzfeed.com
A Kinder Gentler Real Estate Cycle
Optionality:the New Flexibility
… Not just one user profileOptionalityOptionality-the New flexibility
E(verything)-loft
Washington Post
OptionalityOptionality-the New flexibility
… At the same time, not just one use
Labor Scarcityreflected in
Construction Costs
Declining Labor Force Participation RateLabor scarcity in construction costs
Bureau of Labor Statistics, “Current Population Survey”; Moody’s Analytics forecasts.
Labor Scarcity reflected in Construction Costs
Exhibit 1-10
Male
Female
Total
Construction employment volatility
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
Recession Construction Emp
3.15 million jobs
added in 168 months
2.28 million jobs lost in 56 months
1.21 million added in 67
months
Labor scarcity in construction costs
Bureau of Labor Statistics
Labor Scarcity reflected in Construction Costs
Construction labor gets hard to find
$800
$850
$900
$950
$1,000
$1,050
$1,100
$1,150
$1,200
0.0
5.0
10.0
15.0
20.0
25.0
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
Dec 2015
Recession Construction Unemployment rate Weekly Earnings
12-Month moving average %
Labor scarcity in construction costs
Bureau of Labor Statistics
Labor Scarcity reflected in Construction Costs
So what is the solution?
Labor scarcity in construction costsLabor Scarcity reflected in Construction Costs
2017 potential best bet
Take advantage of enhancements in
construction technology
Emerging Trends in Real Estate 2017
Housing Affordability:Local Government
Steps Up
Income growth just can’t keep up with existing home prices
0
25
50
75
100
125
150
175
200
225
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Median HH Income Median Existing Home Prices Affordability
Y/Y Change
Housing affordability
National Association of Realtors, Bureau of Economic Analysis
Affordability
Housing affordability: Local Government Steps Up
Shortage of homes will make it difficult for affordability to see significant improvement
(8,000)
(6,000)
(4,000)
(2,000)
-
2,000
4,000
-
200
400
600
800
1,000
1,200
1,400
1,600
Cumulative Surplus/Deficit Hhouseholds Housing Completions
000s SAAR
Housing affordability
US Census Bureau
Cumulative (000s SAAR)
Housing Affordability: Local Government Steps Up
Housing costs are an increasing burden in more markets
Payment < 30% of HH IncomePayment >30% and < 45% of HH Income
Payment > 45% of HH Income
Housing affordability
National Association of Realtors, Bureau of Economic Analysis, PwC Research
Housing affordability: Local Government Steps Up
So what is the solution?• Noonesolution
• Localgovernment:Ø RediscoveriesØ InnovationswithNOAH
Labor scarcity in construction costsHousing affordability: Local Government Steps Up
14%
14%14%
14%14%
14%
14%
Markets to watch
A Story In Every Market
Emerging Trends in Real Estate 2017
GoodFairChallenged
Markets to Watch
The Top 102016 2017 Market Classification
2 1 Austin 18- Hour
1 2 Dallas/FortWorth 18- Hour
9 3 Portland 18- Hour
4 4 Seattle 18- Hour
10 5 LosAngeles Gateway
7 6 Nashville 18-Hour
11 7 Raleigh/Durham 18-Hour/Suburban
14 8 OrangeCounty 18-Hour/Suburban
3 9 Charlotte 18- Hour
8 10 SanFrancisco Gateway
Emerging Trends in Real Estate 2017
Markets to Watch
34Emerging Trends in Real Estate 2017
2017 Property Type Investment Outlook
Poor Fair Excellent
FulfillmentCenterWarehouse
Urban/highstreetretailAge-restrictedhousing/multifamily
MedicalofficeModerate/workforce apartments
AffordableapartmentsCentralcityoffice
NeighborhoodshoppingcentersStudenthousing
Lifestyle/entertainmentcentersMidscalehotelsUpscalehotels
R&DHigh-incomeapartments
EconomyhotelsFlex
Single-familyrentalLuxuryhotels
ManufacturingOutletcenters
SuburbanofficePowercentersRegionalmall
2017 Local Outlook: Raleigh/Durham
+1%
0
1
2
3
4
5
Investor Demand
Development Redevelopment Opportunities
Local Economy Public Private Investment
Capital Availability
Average National Average
2017 Sector Outlook: Raleigh/Durham
0
1
2
3
4
5
Housing Industrial Office Retail Multifamily Hotel
Raleigh/Durham National
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