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Emerging Trends in Real Estate

By Joseph Mariani

December 16, 2014

Last week I had the privilege of attending the Urban Land Institute’s (ULI) ‘Emerging Trends in Real Estate’ event at the Gensler offices in downtown LA.  If you want to talk about creative office and being inspired, the Gensler offices are the place to be.  However, I digress and that’s another blog for another day.

While at the event, attendees had the opportunity to hear Mitchell M. Roschelle of PricewaterhouseCoopers (co-authors of the report with ULI) share the interesting trends in real estate that are currently sweeping the globe.  During the event I couldn’t help but think about the BIDs’ All Property Owners Meeting this August, where BID staff shared with stakeholder’s how trends occurring across the country are playing out in Hollywood (In case you missed the meeting, you can read about the trends here).  The interesting thing was that a few of these ULI trends fell closely in line with some of those the BID staff identified back in August.  One in particular, the idea of the “18-hour city” is a trend we have experienced firsthand in Hollywood.

During his presentation Mr. Roschelle noted that the highest percentage of urban population growth is occurring in what are called “18-hour cities.”  These are cities that don’t necessarily offer a “24-hour lifestyle,” but instead provide residents with late night amenities and dining options, while still allowing time for rest.  By doing this these communities are fostering a residential lifestyle, thereby creating a demand for both young millennials and families who desire to be where the action is, without having to pay for it the next morning.  A proliferation of new residential units combined with more and more nightlife venues making a change to become neighborhood serving locations, has definitely set Hollywood on the “18 hour city” path.

Another encouraging comment from Mr. Roschelle is that despite the unfortunate fact that bubbles are inevitable in real estate, it is encouraging to see that during this cycle “the industry seems to be behaving more cautiously.”  Many professionals are expecting rates to go up, and have been exhibiting actions that follow suit, noted Mr. Roschelle.  While time will tell what the future indeed holds, it’s good to know that for now we are moving in the right direction.

See below a great summary of the 10 trends from a article written by Stephen Lubetkin.  You can also read the full article here.

“PwC and ULI found that the top trends in real estate for 2015 are:

  1. The 18-hour city comes of age –Downtown transformations have spurred investment and development and raising the quality of life for a roster of cities. Buyers have more markets to consider now that the 18-hour centers are putting the elements in place to ratchet up their investment capital flows.
  2. The changing age game – The millennials are an even larger cohort than their parents – the baby-boom generation. While the tendency of millennials to postpone homeownership and rent longer will affect the apartment sector over the next several years, many survey interviewees noted that investors should consider how the housing preferences of millennials could change in the 2020s. Looking beyond the millennials, the report anticipates further industry changes resulting from the emergence of the smaller “Generation Z.” Planning for a nation with lesser household formation, fewer new consumers, and a meager number of workforce entrants is the challenge ahead for a real estate industry with its eye on the 2020s. The report also notes that baby boomers – as workers and retirees — will continue to have a significant impact on real estate development and investment for at least two more decades.
  3. Labor markets are trending toward a tipping point – The report states that forward-looking businesses are waking up to a realization that while we were worried about the “jobless recovery,” longer-term labor market trends were moving in exactly the opposite direction. Survey respondents place job growth at the top of the list of most important issues for real estate, closely followed by the related concerns of wage and income growth.
  4. Real estate’s love/hate relationship with technology intensifies – Technology is pushing change in space use, locations, and demand levels at an accelerated pace. E-commerce and crowdfunding, for example, are being viewed as an adaptation challenge, as retailers become “omnichannel distributors” and e-tailers begin to open brick-and-mortar stores.
  5. Event risk is here to stay – There is nothing new in seeing investors along the continuum from “core” to “opportunistic,” but the trend will be that such distinctions are heightened over time, and 2015 looks to be a year when this will be especially evident, interviewees note. The reason is that the concern about “event risk” is troubling the minds of more and more interviewees (geopolitical risks, global unrest, and natural disasters). This is why international investors are considered to be the best prospect for increasing investment volume in 2015, according to the survey.
  6. A Darwinian market keeps the squeeze on companies – Competition is unrelenting, and the need to have a clear “brand identity” is important as firms seek to navigate in the swift stream of capital. The recent spin-off activities in the retail, office, and hospitality real estate investment trust (REIT) sectors sound a theme that will echo as a trend in 2015. The drive for efficiency and effectiveness in both service delivery and cost will filter from investor expectations down to the service providers, the report states.
  7. A new 900-pound gorilla swings into view –With a combined $12.6 trillion in capital, individual retirement account (IRA) and defined contribution (DC) funds will be identifying and taking advantage of the benefits of having high-quality commercial property in a mixed-asset portfolio.
  8. Infrastructure: Time for the United States to get serious? – For all our vaunted technological innovations, the foundation of our commerce is eroding around us. It’s not just bridges and roads – since 2009, spending on educational buildings and health care facilities (by both public and private sectors) is down by one-third in real-dollar terms.
  9. Housing steps off the roller coaster – Housing seems to be putting the excesses of the bubble and the ensuing collapse behind it. As this major segment of the economy returns to textbook fundamentals, confidence in the residential sector should continue to rise.
  10. Keeping an eye on the bubble – emerging concerns – The generally positive outlook flowing from this year’s Emerging Trends interviews and survey does have a dark side. Upcycles breed optimism, but excessive optimism can promote bad investment patterns. However, in most cycles, overbuilding and excess leverage would likely have already started building momentum by now. To the degree that hasn’t happened, the industry looks like it has learned some lessons in self-regulation and self-correction.”

A member of the Hollywood Property Owners Alliance staff since 2007, Joseph Mariani has enjoyed seeing the continued positive growth in Hollywood. Serving as the BID’s Director of Strategic Initiatives and Business Development Mariani works closely with property owners, the retail and investment community, commercial real estate brokers and the city’s economic development team to implement the BID’s strategic marketing and communications blueprint.  He holds a bachelor’s degree from the University of California, Riverside and completed his MBA at UC Irvine’s Paul Merage School of Business.  Mariani is an avid sports fan, loves spending time with his amazing wife, and enjoys volunteering at the Oasis of Hollywood. Check out the latest Hollywood happenings @GoodNewsJoe

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