We can start the new year off with good news. The economy is pretty much where we left it for the holidays, with record low unemployment, high consumer confidence, and the longest period of economic expansion on record.
This bodes well for the commercial and residential real estate sectors, which is good for real estate management. Indeed, in high times and low, we still need property managers to manage the buildings where we live, work, shop and dine.
It’s important for real estate managers to recognize the forces that shape the markets, since no sector is fully recession-proof, and the tea leaves are always subject to interpretation. As PwC and the Urban Land Institute point out in their annual opus, Emerging Trends in Real Estate, “This economy may not be as robust as many believe.” This sentiment is supported by economic uncertainty around the world, with factors including Brexit, tariff and trade wars, and global government affairs.
Nevertheless, the report notes that veteran practitioners, those in the trenches daily, firmly believe the pulse of the market is strong. “Real estate will continue to perform,” one investment manager is quoted as saying. “We don’t see oversupply or over-leverage.” The capital markets have also been checking themselves—unlike in the run-up to the Great Recession a decade ago—underscoring real estate’s ability to withstand a recession.
Emerging Trends in Real Estate doesn’t stand alone in its emphasis on the cautious optimism inspired by the amount of uncommitted capital in the real estate market, the changing tastes of younger demographics, along with the needs of the older generations. Deloitte’s 2020 Commercial Real Estate Outlook throws another log on the fire of caution with concerns over the growing volatility of the global economy, and the possibility of a U.S. recession. But fundamentals indicate that the commercial real estate market in the U.S. remains solid, with growth in rentals, a decline in vacancies, and sustained global investor confidence.
A flight to diverse markets
Another trend affecting the real estate industry in 2020 is the migration taking place as the workforce trends younger and toward locales that offer a high quality of life—a lifestyle that comes at such high prices in our major cities. Investors, owners and asset managers need to be increasingly cognizant of where the migration is happening, and potentially adjust their long-term strategies to match.
Emerging Trends in Real Estate’s top 10 markets to watch for 2020 list has relatively few first-tier cities and an interesting array of up-and-comers; Austin, Texas, Raleigh/Durham, N.C., Nashville, Tenn., Charlotte, N.C. and Orlando, Fla. These are “among the highest in projected population growth and net migration,” the report states. “Larger metropolitan statistical areas like Dallas and Atlanta also rate highly in anticipated growth.” Rounding out the top 10 is Seattle.
While the top 10 markets to watch include statistical outliers Boston and Los Angeles, the markets ranked 11 through 20 show more diversity, and even include suburban areas like northern Virginia. Since Amazon announced plans to bring half of its second headquarters to Arlington County, home prices in the area have shot up four percent.
Cities from Los Angeles through the Sunbelt and into Atlanta are apparent hotspots because they offer the amenities and lifestyles of larger cities, without the price tags that go along with them. They also boast strong schools and universities, essentially guaranteeing an ongoing supply of educated employees.
This, of course, is not to diminish the charms of our major cities. Despite their relatively higher costs of living, the traditional top tier markets still hold allure for the up-and-coming population with amenities such as excellent transit, a growing emphasis on walkability, and, of course, homes for major multinational corporations. As Emerging Trends in Real Estate indicates, cities like New York may show “comparatively slow population expansion, but their vibrancy and critical mass generate potent energy for their substantial real estate markets.”
Additional trends to keep an eye on
As 2020 evolves, other trends in real estate are likely to emerge, sparked by the issues of the day, from the rapid growth of building technologies, the increasingly substantial economic challenges generated by climate change, the evolution of mixed-use developments, and the impact of the aging boomer population on real estate investment. As these diverse trends continue to build, we’ll keep our eyes on all of the moving parts. Intelligent strategies built on our own market savvy are the best bet for weathering the tides of change, no matter what those changes bring.
In addition to her role as 2020 president of the Institute of Real Estate Management, Cheryl Ann Gray serves as the head of special projects and operational excellence at QuadReal Property Group in Toronto. She’s IREM’s first international president.