Report From ULI, PwC Ranks Austin, Raleigh/Durham, Nashville as Top Markets for Investment, Development

ULI contact: Trisha Riggs, 202-679-4557; [email protected]

WASHINGTON (September 19, 2019) — Real estate in the U.S. remains a favored asset class, even as economic uncertainty looms and forces of change related to the environment, infrastructure, demographics, consumer behavior, and technology are necessitating flexibility in space design, development and business operations, according to Emerging Trends in Real Estate® 2020, co-published by the Urban Land Institute (ULI) and PwC.

The widely anticipated annual industry forecast, released today at ULI’s Fall Meeting in Washington, D.C., cites adaptability to change along with discipline as key factors in the industry’s ability to withstand an economic downturn and the possibility of softer real estate demand in the years ahead.

The report’s findings suggest that a willingness to embrace change and rethink growth strategies is beneficial for cities as well as the industry: Austin is ranked first out of 80 cities in the U.S. for overall real estate prospects for 2020, followed by Raleigh/Durham, Nashville, Charlotte, and Boston.

“Throughout this period of extended economic growth, real estate development has been dominated by creative mixed-use projects that have revived many urban areas,” said ULI Global Chairman W. Edward Walter. “Going forward, those who continue to innovate with spaces that can be easily be repurposed as cities evolve will have a competitive edge. Staying ahead of change means being flexible and adaptable.”

“Even though we are late in the expansion cycle, volatility in global financial markets, coupled with global geopolitical instability continues to drive investors towards U.S. real estate.  The asset class remains desirable as investors seek predictable cash flows from tangible investments,” noted Mitch Roschelle, PwC Partner.

Trends highlighted in the report include:

• Easing on Down the Road – Confidence is one thing, complacency is another. Attention should be given to the prospects for an extended downshifting in the economy and its implications for commercial property demand in the decade ahead.
• The Siren Call of TINA (There Is No Alternative) – The urge to deploy capital just because it is available is more a tendency than a trend, and one that is best avoided. “A surfeit of capital desperately seeking placement is the very definition of a bubble that remains unrecognized until it bursts,” notes the report.
• A New Menu for Markets – Specialization has become the hallmark of real estate, drawing investors to different types of markets for different reasons.
• Housing: The Great Unraveling – Affordability has reached the breaking point even in markets that previously boasted of low-cost housing. Housing conditions are routinely described as challenging, to the point of discouraging employers to locate in areas with inadequate affordable housing. One attempt at a solution: a rise in co-living, among older as well as younger generations. Increasing numbers of municipalities are implementing policies such as inclusionary zoning and offering incentives such as density bonuses to address the problem.
• A Community State of Mind – Demand is rising for communities in which a sense of place is created organically through sharing common interests and values, rather than concocted through prescribed programming and business goals.
• Hipsturbia – The live-work-play districts that spurred 24-hour downtowns in the 1990s has spread to many suburban communities, which are seeking to become hip destinations, or “hipsturbs” of their own right. The key to success: transit access, walkability, and abundant retail, restaurant and recreation options.
• Boomers and Beyond – Boomers can expect to stay active while living longer, which has positive implications for housing demand in downtowns and hipsturbs, as well as workplaces, as many may choose to keep working or pursue second careers.
• ESG: A Sustainable Trend – There is a growing commitment to the tenets of ESG (environmental, social and governance) principles among corporations in general and real estate in particular. Sustainability evaluation is becoming a checklist item for institutional investors domestically and worldwide. Strong interest by millennials in environmentally and socially conscious business practices is a major factor driving this trend.
• March of Technology: The What and When of Disruption – Technology is affecting all property types, most obviously retail and industrial. Property managers are turning to technology solutions for productivity enhancements and improved operational efficiency. In addition, demand is increasing from occupants and capital sources for technological sophistication across all sectors.
• Infrastructure: Washington Fumbles; States and Cities Pick Up the Ball – Real estate professionals unwilling to wait for a federal solution to America’s urgent infrastructure needs can look to states and localities that are committed to improved infrastructure as a foundation for economic growth.

Markets to Watch      

Despite differences in size, growth, geography, and local culture, Emerging Trends notes that the highest ranked markets for investment and development prospects are those that have successfully positioned themselves as interesting, lively places with ample employment opportunities and a good quality of life, even as housing affordability challenges intensify. In addition to the top five markets, other favorites for 2020 include Dallas/Fort Worth, Orlando, Atlanta, Los Angeles, Seattle and Tampa/St. Petersburg.

New categories of markets to watch were added this year to reflect factors that elevate the appeal of some metro areas for specific reasons. These include:

• Major Capital Magnets – Manhattan, Chicago, Inland Empire (Calif.), Northern New Jersey, Houston, Phoenix, San Diego, Oakland/East Bay (Calif.), and Miami. These markets accounted for more than 17 percent of total U.S. transactions over the past three years.
• Stalwarts, Surprises and Determined Competitors – Philadelphia, Long Island (N.Y.), Fairfield County (Conn.), Queens, Bronx and Staten Island (N.Y.), Minneapolis/St. Paul, Sacramento, Kansas City, Las Vegas, Baltimore, District of Columbia, and Detroit. All have a credible track record of capital inflows and recent evidence of solid transaction volume.
• Treasures Ripe for Discovery – Jacksonville, Salt Lake City, Columbus, Cincinnati, Louisville, Pittsburgh, Greenville (S.C.), Oklahoma City, Cape Coral/Fort Myers/Naples (Fla.), Boise, Spokane, Des Moines, Tacoma, and Jersey City. All have populations exceeding 1 million (the litmus test for some national investors) and double-digit growth rates.

The report notes that the industrial/distribution sector continues to be ranked highest for investment and development prospects, reflecting the impact of e-commerce and rising demand for storage and delivery facilities; data centers are also garnering interest. Multifamily and single-family housing are highly favored, as housing needs continue to change for millennials and baby boomers. Less favorable: office space, hotels, and retail, with the latter receiving the lowest ranking.

Now in its 41^st year, Emerging Trends in Real Estate® is one of the most highly regarded annual industry outlooks for the real estate and land use industry. It includes interviews and survey responses from more than 2,200 leading real estate experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers and consultants.

NOTE TO REPORTERS AND EDITORS: We encourage you to include this link to Emerging Trends in Real Estate® in your articles.

About the Urban Land Institute

The Urban Land Institute is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has more than 45,000 members worldwide representing all aspects of land use and development disciplines. For more information, please visit uli.org or follow us on Twitter, Facebook, LinkedIn, and Instagram.

About PwC US

At PwC, our purpose is to build trust in society and solve important problems. PwC is a network of firms in 158 countries with more than 236,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/US.