The Optimism Continues… but for How Long?

uli meeting

For the 37th year in a row, the Urban Land Institute (ULI), in conjunction with PwC, released its Emerging Trends in Real Estate publication. Local ULI chapters then hosted luncheons where a speaker from either PwC or ULI discussed the findings and their local impact with a panel from the market. The report and sentiments shared at the events gave a good foundation for the attendees to make decisions in 2016. This year, the common feeling was one of cautious optimism. However, is our optimism blinding us from a coming downturn or are we still simply gun-shy from the recession?

The Trends report compiles surveys of leading real estate executives from around the world to get a pulse on what is coming for the next year. The outlooks also attempt capture the overall sentiments from the respondents. One such respondent stated “You can never forget about cycles, but the next 24 months look doggone good for real estate”.

A summary of the 10 trends identified in this year’s report include:

• Hot 18-hour Cities: The secondary markets cities that have a good combination of employment and a nightlife scene continue to outperform the traditional primary markets.

• Resilient Suburbs: Despite rumors of their death, suburbs are continuing to thrive in all but the most major of markets… and millennials are the next to make the move.

• More Employment = More Office Demand: Vacancies are low and rents are rising at a brisk pace, but new office space is redefined into pods and shared spaces, including co-work spaces.

• Housing Options for Everyone: Homeownership is settling back towards its average of 65%, but the demand for multi-family, from affordable to luxury, will continue through 2016.

• Less Parking, more Uber: Even ahead of the wave of autonomous cars that is imminent, millennials are driving 34% less, some opting not even to get a license. Be thinking about parking lot re-use and minimizing spaces in new developments.

• Infrastructure crumbles, Brand It?: Limited funding is leading to creative ways to pay for infrastructure which is necessary to keep the “work” near the live-work-play model.

• Food is Getting Closer: The rise of the “Locavore” has placed an emphasis on food sourced nearby and is pushing re-use of vacant land and buildings with little other prospects.

• Consolidation Breeds Specialization: The big firms in development, equity, and lending are getting bigger, allowing smaller niche firms to grow rapidly with less competition.

• What to Do with All of the Money?: Foreign investment money continued to flow in 2015 ($497.4 B, up 25%) and should continue in 2016. Competing funding means creative alternatives will get funded.

• A Return to the Handshake: Active involvement is more valued than stats or projections in 2016. From security concerns to teaming, knowing who you are working with has greater value.

This year, the North Florida chapter of ULI hosted 3 luncheons in Jacksonville, Gainesville, and Tallahassee. All three were sold out events with hundreds of local participants in real estate, design, construction, engineering, and financing coming to learn from the speakers and each other.

In each of these venues, the question was the same… Things are good. They continue to look good for the foreseeable future. When’s it going to stop? This was not only a local concern and was addressed by the national speakers. As the charts below show, market optimism for 2016 has been unmatched in the 37-year history of the Trends report, except for one year… 2006, right before the downturn.

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So which is it? Are we continuing to rise or are we on the precipice of a fall? The feeling shared by all experts was nearly unified. Barring some drastic movement in interest rates, foreign markets, or terrorism, the indication was for continued growth through 2016. To quantify the statistic, the renowned University of Florida economist David Denslow said this to the Gainesville crowd, “Any given year has about a 20% chance for a recession. 2016 has a slightly higher chance at about 25%”. In other words, despite the doom and gloom you hear on TV, all indications are positive growth through the year.

Now, go make hay while the sun is shining!

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You can download the full Emerging Trends in Real Estate report here:
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