emerging trends in real estate 2017 · recognizing the role of the small entrepreneurial developer...
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Emerging Trends in Real Estate 2017
Emerging Trends is the industry’s “most predictive forecast”
38th annual outlook - 10th anniversary for Canada outlook
Based on over 500 interviews and 1,500 surveys of industry leaders - 115 and 246 in Canada respectively
Sponsored jointly by PwC and the Urban Land Institute
“Innovation is by far our biggest issue. We strive not
only to lead – but also to attempt to remain far ahead of the competition.”
Emerging Trends: Reflect market sentiment
5
Ongoing Oil and Gas Woes
Technology DisruptorsHold a CompetitiveAdvantage
Affordability onthe Decline
Waiting for Deals
Global Uncertainties
Weigh on the Mind
Renting for the Long Term
More than mixed use, it’s about building communities
Affordability on the decline
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
Quebec City
Winnipeg
Halifax
Ottawa
Calgary
Edmonton
Saskatoon
Montreal
Canada
Toronto
Vancouver
2016 Forecast price-to-income ratio
6TD Economics, Regional Housing Report – August 2016
More than mixed use, it’s about building communities
7
Focus on mixed use communities rather thanstand alone mixed use buildings
Tenants are demanding dynamic neighborhoodsthat combine residential, retail, commercial andpublic spaces
Can lead to partnerships between experts indifferent components
Renting for the long term
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036
Renters Owners
8Canada Mortgage and Housing Corporation
000s of households
Technology disruptors hold a competitive advantage
3.49
3.61
3.82
3.89
3.98
3.99
4.20
1 2 3 4 5
Flexibility
Proximity to customers
Connectivity
Labor Cost
Technology readiness
Rent
Labor availability
Impact on location decision
9
1 2 3 4 5
Not important Limited importance Average importance Important Great importance
Emerging Trends in Real Estate 2017 survey
“We’re getting to the point where if people don’t recognize technologies are existing and, moreover, how to integrate them, opportunities are being missed.”
Global uncertainties weigh on the mind
2.71
3.32
3.66
3.66
3.7
3.95
4.32
1 2 3 4 5
Sharing economy
Global economic Growth
Taxes and regulation
Income inequality
Macroeconomic issues
Interest rates and cost ofcapital
Job and income growth
Economic/financial issues
10
2.77
2.81
3.20
3.33
3.48
3.54
3.72
1 2 3 4 5
Political landscape
Education (cost andavailability)
Immigration
Government budget issues(local/state/federal)
Qualified labor availability
Social inequality
Terrorism/war /epidemics
Social/political issues
2.47
2.63
2.99
3.2
3.87
3.91
3.99
4.3
1 2 3 4 5
Extreme weather
Wellness health features
Water regulation
Sustainability
Housing cost and availability
Infrastructure
Capital availability
Land and construction costs
Real estate /development issues
Emerging Trends in Real Estate 2017 survey
1 2 3 4 5
No importance
Little importance
Moderate importance
Considerable importance
Great importance
Ongoing oil and gas woes
154.94 173.59
310.83375.01
450.50532.84201.06
236.21
238.44
253.94
267.23
282.12
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1990 2000 2012 2020 (f) 2030 (f) 2040 (f)
World energy consumption, 1990-2040 (quadrillion Btu)
Non-OECD OECD
11
Energy consumption will rebound, but will prices?
US Energy Information Administration
Waiting for deals
11%
38%
52%
14%
62%
23%
0% 10% 20% 30% 40% 50% 60% 70%
Undersupplied
In balance
Oversupplied
Debt capital for acquisition
2017 2016
12
6%
26%
68%
11%
31%
59%
0% 20% 40% 60% 80%
Undersupplied
In balance
Oversupplied
Equity capital for investment
2017 2016
Emerging Trends in Real Estate 2017 survey
2017 Expected best bets
13
Emerging Trends in Real Estate 2017
Urban mixed-use developments
Purpose-built multi-family rentals
2017 Expected best bets
14
Industrial property
Emerging Trends in Real Estate 2017
Senior housing/retirement
homes
Property Type Outlook
15
Retail
Commercial
Condominium
While there are regional variations in the outlook for different property types, developers, investors and property owners did strike some common notes in their assessment.
Investment outlook
3.22
3.28
3.45
3.34
3.47
3.52
3.08
3.17
3.23
3.33
3.38
3.49
1 2 2 3 3 4 4 5 5
Retail
Office
Hotels
Single family
Multifamily
Industrial/distribution
Major sectors
2017 2016
16
3.37
3.60
3.70
3.71
3.73
1 2 3 4 5
Midscale hotels
Medical Office
Urban/high street retail
Age restricted housing/Multifamily
Fulfillment
Top subsectors for 2017
Emerging Trends in Real Estate 2017 survey
1 2 3 4 5
Abysmal Poor Fair Good Excellent
Development outlook
2.76
2.98
3.31
3.47
3.49
3.65
2.56
2.85
2.89
3.23
3.32
3.57
1 2 2 3 3 4 4 5 5
Retail
Office
Hotels
Single family
Multifamily
Industrial/distribution
Major sectors
2017 2016
17
3.00
3.50
3.71
3.71
3.96
1 2 3 4 5
Economy hotels
Medical Office
Age restricted housing/Multifamily
Urban/high street retail
Warehouse
Top subsectors for 2017
Emerging Trends in Real Estate 2017 survey
1 2 3 4 5
Abysmal Poor Fair Good Excellent
Markets to watch2017 markets to watch
18
2012 2013 2014 2015 2016 2017
Vancouver 2 4 4 4 1 1
Toronto 1 3 5 3 2 2
Montreal 7 5 9 6 3 3
Ottawa 5 6 6 5 4 4
Saskatoon 6 7 3 8 5 5
Winnipeg 9 8 7 7 6 6
Halifax 8 9 8 9 8 7
Edmonton 4 2 2 2 7 8
Calgary 3 1 1 1 9 9
Emerging Trends in Real Estate 2017 survey
Emerging Trends in Real Estate 2017
Playing for Advantage, Guarding the Flank
Nadia King
February 2017
Expectations hitting a plateau?
26.2%
1.9%
56.1%
16.8%
86.9%81.3%
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
20
Abysmal - poor
Fair
Good - excellent
2017 Emerging trends in real estate
21
Ready for augmented reality
Transformation through location
Role of the small developer
Labor scarcity and construction costs
A kinder gentler real estate cycle?
Blockchain
Connected cities
Beyond the velvet rope
Housing affordability
Optionality
2017
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
198
0
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Vacancy % Completions as % of Inventory Average 1980 - 2001 Average 2001 - 2016
22
Vacancy %
Completions %
Vacancy
01 – 16 average
80 – 00 average
Completions
A Kinder Gentler Real Estate Cycle?
Reis, Inc : Sum of industrial, office and retail property
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
Dec2000
Dec2001
Dec2002
Dec2003
Dec2004
Dec2005
Dec2006
Dec2007
Dec2008
Dec2009
Dec2010
Dec2011
Dec2012
Dec2013
Dec2014
Dec2015
Recession Construction Unemployment rate Weekly Earnings
24
12-Month moving average %
Labor scarcity in construction costs
Bureau of Labor Statistics
Income growth not keeping 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
25
Y/Y Change
Housing affordability
National Association of Realtors, Bureau of Economic Analysis
Affordability
Uneasy equilibrium
Gaining entry beyond the velvet rope
Communities realize the value of diversification
Number of affordable housing initiatives on the November ballot
Dealing with community opposition
Sharing information through social media
26
Gaining entry beyond the velvet rope
Small developers influence on the market
90.7%
6.3%
2.7%0.3%0.02%
Establishments by Number of Employees
0 to 20 20 to 49 50 to 249
250 to 999 1000 +
27
Recognizing the role of the small entrepreneurial developer
Bureau of Labor Statistics
In demand from global/national investors looking to access markets
Superior feel for local market conditions
Feel the impact of restricted access to capital sooner in any cycle
Connected Cities
Infrastructure Economics Philanthropy Growth
28
Connected Cities
Factors contributing to vibrant cities
Augmented reality potential market impact
$11.6
$5.1 $4.7
$4.1
$3.2
$2.6
$1.6
$1.4 $0.7
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
29
Ready for augmented reality?
Goldman Sachs
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
30Emerging Trends in Real Estate 2017
Markets to Watch – Who is on the rise?
31
Columbus
Emerging Trends in Real Estate 2017
Charleston
Good
Fair
Challenged
2017 Property Type Investment Outlook
Industrial Apartment Hotel Office Retail
Hotel
Retail
32
Poor Fair Excellent
Industrial
Multifamily
Office
Emerging Trends in Real Estate 2017
2017 Property type subsector investment outlook
Medical Office
Midscale Hotel
33
Poor Fair Excellent
Fulfillment Centers
Urban/High Street Retail
Moderate Income Apartment
Emerging Trends in Real Estate 2017
Thank you!
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