ULI Atlanta Trends in Real Estate 2020October 30, 2019
Emerging Trends inReal Estate 2020
PwC
Emerging Trends in Real Estate 2020
2Emerging Trends in Real Estate 2020
Predictive Industry publication now in it’s 41st year
Sponsored jointly by ULI and PwC
Input from over 2,200 industry leaders
/ ULI
PwC
Market Sentiment; Still positive, but are we seeing some diversity in opinion?
Emerging Trends in Real Estate 20203/ 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 20204
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 20205
Reasons given for change in expectations from 2019
/ ULI
Lower Higher
PwC
We’ve always done it this way’ doesn’t cut it in real estate anymore. We need to find the best way to do it.
Emerging Trends in Real Estate 20206
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 20207/ ULI
8
GDP growth is projected to downshift to a more sustainable — but slower — paceBaseline expectations are for a “lower for longer” soft landing, but there are significant downside risks.
Source: IHS Markit
US real GDP growthYear-over-year % change
Post WWII: 3.2%
Current: 2.2%
The largest benefits from tax cuts and an expanded federal budget are behind us
The slowdown in China and the rest of the world, which the US trade war has exacerbated, is weighing heavily on US manufacturing
The Fed rate cut means less risk of a policy mistake...but there is still not much policy runway
An aging population and weak productivity growth will prevent sustained growth over 2%
Decades of public and private sector underinvestment will continue to restrain growth
Emerging Trends in Real Estate 2020PwC / ULI
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…
9Emerging Trends in Real Estate 2020
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PwC
Danger of relying on averages
-5.0%
-3.0%
-1.0%
1.0%
3.0%
5.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
10
Real GDP growth average of all metros and Atlanta
Emerging Trends in Real Estate 2020
Atlanta 20 year average 2.4%
All market 20 year average 1.8%
Growth in Atlanta may slow going forward, but no reason to believe that Atlanta won’t continue to easily outpace national average
PwC
72.9%Average percent of survey respondents that recommend either buying or holding in 2020 39.3%
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?
11Emerging Trends in Real Estate 2020
/ ULI
PwC
The flow of capital into real estate is both a blessing and a curse
Emerging Trends in Real Estate 202012/ ULI
PwC
Last time we talked about
TINA
PwCEmerging Trends in Real Estate 2020
13
2007
/ ULI
A few assumptions that may have gone wrong
• Unrealistic rent growth assumptions
• Further cap rate compression
• Continued demand
PwC
Everyone may still be going in, but with an eye toward caution!
PwCEmerging Trends in Real Estate 2020
14
2019
/ ULI
What might be different this time?
• Much higher risk premium in the market
• Realistic underwriting assumptions
• Plenty of capital waiting to enter the market
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
15Emerging Trends in Real Estate 2020
/ ULI
PwC 16Emerging 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
Stalwarts, Surprises and 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 10 Markets
17Emerging 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
Heavily weighted toward growth and the Southeast
/ ULI
PwC
Top 20 Markets
18Emerging 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
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PwC
23Number of states experiencing positive domestic net migration• Geographically concentrated across
the South and West• Florida and Texas account for 43%
of all positive net in migration• The top 10 states account for 89% of
all net in migration
2010 – 2018 cumulative domestic net migration (000s)
Emerging Trends in Real Estate 202019
1,160
8
402219924
1,019
13
3643
322
86
67
362
192
206
295
205315
5
Delaware = 33DC = 30New Hampshire = 7
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PwC
1
2
3
4
5Office
Retail
MultifamilyIndustrial
Single Family
Atlanta All Market Average Top 20 Average
Deviation of local market outlook from survey averages by property type
20Emerging Trends in Real Estate 2020
• Scores show how markets are converging rather than diverging throughout this business cycle
• Atlanta outlook exceeds top 20 except for single family and industrial
• Office, retail and multifamily equal the top 20
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PwC
1
2
3
4
5Local Economy
Investor Demand
Capital Availability
Opportunity
Public/PrivateCooperation
Local DevelopmentPlayers
Atlanta All Market Average Top 20 Average
Deviation of local market outlook from survey averages by market characteristics
21Emerging Trends in Real Estate 2020
• Market preference for above average growth shows in factors related to local market growth
• Atlanta equals or exceeds the Top 20 in all categories
• Atlanta exceeds in the strength of the local economy, development capability and opportunities
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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 202022
Trend #4Housing: The Great Unraveling
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PwC
Political climate is leading to a rise in rent control rules
23
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
24
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
Uni
ts
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
/ ULI
PwC
Searching for a feeling of place
Emerging Trends in Real Estate 202025
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 202026/ ULI
PwC
One work space does not fit all workTenants 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 202027/ ULI
PwC
Suburbs are becoming cool again
Emerging Trends in Real Estate 202028
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
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PwC
Cool Suburbs
29Emerging Trends in Real Estate 2020
/ ULI
Bellevue, WA
Beaverton, OR
Maplewood, NJ
Denton, TX
Alexandria, VA
Decatur, GA
Somerville, MA
Arvada, COKirkwood, MO
Belmont, NCPasadena, CA
Winter Park, FLRound Rock, TX
Alameda, CAEllicott City , MD
Royal Oak, MIMedia, PA
Evanston, 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 202030/ ULI
PwC
The percent of total population over 65 in 2046. The year the first millennial will turn 65
35.0041.74
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 Tot
al P
opul
atio
n
(milli
ons)
Population over 65
% of Total Population
First Baby Boomers turn 65
Population over 65 on the rise
31Emerging Trends in Real Estate 2020
First Gen Xers turn 65 First Millennials
turn 65
Source: US Census Bureau, Moody’s Analytics/ ULI
PwC
Estimated amount of wealth transfer that could occur over the next 30 years – Or will the boomers spend it all?
Emerging Trends in Real Estate 202032/ 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 202033/ ULI
PwC
Attitudes may be shifting
34Emerging Trends in Real Estate 2020
PwC
It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.
- Business Roundtable
Emerging Trends in Real Estate 202035/ ULI
PwC
Some asset classes ahead of others in terms of implementation• Real estate trails only private equity
in terms of having ESG policies in place
• Long-term adaption of green building standards gives real estate a head start
• Room for growth due to relatively high percentage of asset classes that have not adopted, nor plan to
Investor plans toward ESGpolicies in their portfolios
Emerging Trends in Real Estate 202036
35%23%
17%28% 27%
12%
13%
8%7%
11% 11%
6%
35%
43%48%
40% 39%
47%
16%25% 28%
21% 23%35%
PRIVATE EQUITY PRIVATE DEBT HEDGE FUNDS REAL ESTATE INFRASTRUCTURE NATURAL RESOURCES
UnsureNo, No Plans toNo, but Plan to within the Next 12 MonthsYes, Have a Policy in Place
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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 202037/ ULI
PwC
We continue to generate more data every year!
38Emerging 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
39Emerging Trends in Real Estate 2020
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PwC
5G will enhance speed and reliabilityThe 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 202040
Date/ ULI
PwC
What you don’t want to see when…
41Emerging Trends in Real Estate 2020
PwC
Cities that have invested in their infrastructure are clearly seeing an economic advantage
DateEmerging Trends in Real Estate 202042
Trend #10Washington stumbles; States and Cities pick up the ball
/ ULI
PwC
Government infrastructure investment has been below average since the American Recovery and Reinvestment Act
The result has been a shortfall in spending of over $100 billion a year
Government infrastructure investment
43Emerging Trends in Real Estate 2020
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
1979 1984 1989 1994 1999 2004 2009 2014
Net Government Investment
Shortfall
1980 – 2000 Average
% of Nominal GDP
Source: BEA/ ULI
PwC
%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 202044
1.7%
3.6%
6.5%
7.2%
7.5%
35.5%
38.0%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Affordable Housing
Education/Environmental/Amenities
Energy/Utilities
Technology
Air/Rail/Port
Mass Transit
Roads/Bridges
Percent of Respondents
/ ULI
PwC
Not all projects require public funding
45
Several of the high speed rail (HSR) projects on the list are being undertaken by private ventures
Brightline is expanding rail service from Orlando to South Florida with a possible extension to Tampa
A similar project would link Las Vegas to Los Angeles
Emerging Trends in Real Estate 2020/ ULI
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