2014 Emerging Trends
March 26, 2014
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Predicting the future is not one of the items listed under my skill set, so I turn to real estate articles and reports to find out what the expectations are for real estate trends in 2014. PricewaterhouseCoopers LLC recently published a 100-page report (Emerging Trends in Real Estate 2014) that offered some insight. For those of you who don’t want to read 100 pages of analytical information, I will share a few key points.
In a number of markets hit particularly hard by the bursting of the housing bubble investors have purchased distressed homes in bulk over the past several years. The report mentions this has helped to stabilize these markets. It commented that, in most markets, activity has reached a level that is supportive of economic growth.
As far as future prospects, the sentiment is that multi-family and build-to-suit opportunities have dominated development over the past few years and this could be the year for industrial development. You will probably see redevelopment in the office sector as owners try to reposition to meet changing tenant demands. Those using office spaces are looking for less space per worker while they reconfigure for more collaboration. Retailers look for urban solutions to serve city customers more efficiently. Fast delivery times are a concern for all businesses. The trend for multifamily will include less space per unit but more space in the common areas.
Speaking of changes, the Y-generation is likely to have the most singular dominant impact on trends for years to come. They are different than previous generations in the ways they live, work and play. They will be more urban and less suburban. They won’t drive as much but are definitely mobile. They will shape commercial real estate by wanting in-town rental housing and causing companies they do business with to want to locate close to ensure same-day delivery from online retailers. Add the baby-boomers to the mix as they want to sell their homes and have the same amenities as gen Y (but with the added feature of convenient health care).
They noted that investment funds, both debt and equity capital, will be on the rise. While the sources are not new, equity is expected to increase the most from foreign investors and the favorite for increases in debt capital are in the commercial mortgage-backed securities (CMBS) market. It seems the players are getting more comfortable with the improving real estate market conditions.
So, fundamental asset management will be the key to improving cash flow and commercial property performance as interest rates rise just moderately. Income growth is expected to come from higher occupancies and higher rent. Be sure to keep in mind the changing customer base as you choose locations and reconfigure properties to meet the demands of your market.