Navigating at Altitude
“We are in a long cycle, not in boom/bust. The key to the next few years is to expand horizons, market by market, property type by property type.”
All frequent flyers know that the most critical times in air travel are takeoff and landing. Real estate has been soaring as of late, and thankfully so. This year’s discussions in Emerging Trends in Real Estate® focus on managing the descent safely, keeping in mind the lessons of past bumpy touchdowns.
Fortunately, a sudden drop in altitude does not seem to be in the offing. Instead, our survey respondents, focus groups, and interviewees expect a long glide path for the economy and for the industry—the extension of the current cycle for 2018 and perhaps beyond. A tailwind of demand is expanding real estate utilization rates across a procession of generations extending from baby boomers, through the millennials, and now to generation Z. Each generation is large in numbers (although gen Z is somewhat smaller than the others) and complex in composition—and is contributing to real estate’s forward momentum.
The pilots, however, are going to be coping with new instrumentation as the guidance previously provided by the London Interbank Offered Rate (LIBOR) is replaced by a new benchmark for debt costs. It is as yet unclear what the new altimeter for interest rates is going to look like, but the engineers are already hard at work.
Real estate capital managers are poring over the maps, pondering the destination for amply available funding. As we enter 2018, the money is flowing in something resembling the hub-and-spoke pattern familiar to the major carriers, with more and more service being provided to select secondary cities and to well-situated suburbs where customer demand is on the rise.
Data keep flowing through real estate’s equivalent of the air traffic control system, and we identify several of the most important indicators on the radar screen, from politics, to technology, to basic employment and income. Recent events have also underscored the importance of elements of literal turbulence—major natural events such as drought and storms—that should be causing us to check our seatbelts. With a close eye on the beacons guiding a safe descent, investors and developers can be said to be bringing the flaps down gradually, keeping real estate well above stall speed and on track for a soft landing at the end of a long and profitable cyclical ride.