Every year, the PwC and the Urban Land Institute join teams to release one of the most well received real estate forecast reports in the world. In its 37th edition, Emerging Trends in Real Estate® 2016 provides an outlook on real estate finance and capital markets, investment and development trends, property sectors, metropolitan area, and other issues affecting the industry in the United States and Canada. The research process involved completing surveys and interviewing key real estate players, including investors, developers, fund managers, lenders, brokers, property companies, advisers and consultants. The report, in its entirety, covers several aspects of the market; from apartments to hotel, the debt sector to climate change. In this first part of our series, we’ll look at the increasing popularity of secondary markets in cities that have become “hip,” as well as the resurgence of the suburbs.
In last year’s report, the identification of the so-called “18-hour city” was a focus. These cities are considered “second-tier” when compared to their 24-hour counterparts, like Boston, New York City, and Los Angeles. This year’s study found a growing confidence in the investment returns in the markets of 18-hr cities, like Austin, Denver, and San Diego. Both global and domestic investors are looking outside the gateway cities and finding the secondary, “hip” markets to not only be safe bets for a solid return on their investments, but they’re also providing the same attractions that are typically found in the larger markets. Developing technology is making it possible for these smaller cities to offer all of the benefits of large urban areas at a fraction of the cost, all while producing their own unique culture, which industry players are finding to be “cool.”
But the impact of market downturns are usually more devastating in smaller markets, leaving the future a little less stable considering the natural ebb and flow of the industry. However, learning from past mistakes, capital markets have shown a “greater degree of restraint when it comes to funding new development.” This has allowed 18-hour cities to avoid supply pressure, while sophisticated investors pinpoint their investments in more defined submarkets or neighborhoods. The concept that an investment “anywhere in the market is good” is a trend that is on its way out. Moving forward, the trend to flock to 18-hour cities is expected to intensify. Here, investors can pick up property at a fair price with less risk, in a downtown that is attracting both residents and businesses.
While downtown, urban areas are thriving, so too are the suburbs. Prices in core gateway markets continue to rise, rejuvenating interest in suburban opportunities. Societal shifts have created a generation where deferral of marriage and child-rearing is the norm. Millennials are choosing to remain single in their denser downtown dwellings for longer, however logic tells us that sooner or later, they will follow in the baby-boomers’ footsteps and head to suburbia. Recent ULI surveys found that more millennials wish to live in the suburbs than currently do, and that about 60% say they see themselves living in detached single-family home five years from now. On the contrary, slightly more millennials claim they prefer city living (37%) to suburban living (29%), however this gap is expected to grow smaller in the near future.
It is important to point out that while the suburbs are likely to see an influx in the future, these aren’t the same suburbs of the previous generation. Developers are keen on creating “diet urban” locations, offering suburbs that are close-in, transit-oriented, and mixed-use, bringing an urban feel to the neighborhood. In a world where two-income households are the social norm, transportation has become as important, if not more, than affordability or schools to millennial investors. In recent years, job growth has been higher in the core of the majority of top 40 U.S. metropolitan areas, as opposed to the periphery. This trend has held true in gateway cities like NYC and San Francisco, as well as the secondary markets, like Charlotte, Nashville, and Portland. Access to these growing employment opportunities is key for the future growth of suburbs.
For information about the real estate market in Miami and surrounding areas, contact Oceanica Real Estate at (786) 270-1743 or [email protected].