A new report from the Urban Land Institute and PwC takes a close look at the biggest current and ongoing trends facing North American real estate investors.
And let me tell you: It’s a doozy.
The 107-page tome is full of charts, graphs, expert insights, and hundreds of valuable data points. It’s definitely not a read-in-one-sitting document, but it’s brimming with golden nuggets of info that any forward-thinking real estate investor should have.
Don’t have time to read the report? I’ve got you covered. I’ve combed the document and pulled out the top seven trends you’ll want on your radar.
1. The move toward specialization
Investor competition is on the rise, and it calls for a more creative approach to property selection.
As the report explains, "The competition to find investments that meet the return requirements of a growing investor pool has resulted in looking to new and more complex methods to find markets and property sectors that may fall outside the traditional size and growth metric."
In short, investors need to specialize and focus on niche-level opportunities. The report specifically mentions specialty markets like:
- senior housing,
- medical offices,
- cell towers,
- data centers,
- multifamily buildings,
- hotels, and
You’ll even find detailed city-by-city recommendations in many of these categories at the bottom of the report.
The main takeaway? ULI and PwC recommend that investors dive deep to discover "pearls of great value" in markets they’re considering. "Specialization has become the hallmark of many professional fields, and real estate is no exception," the report reads.
2. An ever-growing live-work-play mantra
Urban areas have long been a haven for the live-work-play lifestyle. Residents want walkable commutes, easy access to housing, and 24-hour amenities. But today, it’s not just major city centers providing this way of life.
The 24-hour live-work-play approach has officially entered suburbia, with smaller cities like Charleston, South Carolina, and Jacksonville, Florida, joining the ranks. It’s stretching from Brooklyn into New Jersey towns like Hoboken and Maplewood and from Manhattan into Yonkers and New Rochelle.
And it’s not slowing down, either. According to the report, investors should expect more communities to embrace the 24-hour (or at least 18-hour) lifestyle: "If the live-work-play formula could revive inner cities a quarter-century ago, there is no reason to think that it will not work in suburbs with the right bones and the will to succeed."
3. Heat as an influencer
Rising temperatures will impact investing from all angles, influencing where people migrate, the infrastructure required, and overall building costs. As the report puts it, "Without intervention, the current and potential future impacts of extremely high temperatures -- on real estate developments, infrastructure, and the economy -- could be substantial."
Some stats to note about this trend:
- July 2019 was the hottest month on record, according to NOAA.
- High temperatures in urban areas increase building cooling loads by 13%.
- Temperatures over 120 degrees make it too hot to fly. American Airlines canceled 40 Phoenix flights in June 2017 alone because of too-high temperatures.
Seattle is a great example of just how hard rising temperatures can hit investors. Before 2010, a mere 6% of Seattle rental properties had central air conditioning. Now, a full quarter of them do.
4. The role of rent control
California, Oregon, and New York’s latest rent control laws have the topic on every landlord’s mind. As housing affordability issues abound, more markets are likely to consider a similar move. In fact, according to the report, the majority of developers downright expect it.
"Most apartment owners, developers, property managers, and investors see the issue as a major challenge that could affect both opportunity and risk profiles for the apartment asset class for years to come," the report states.
The news isn’t all bad, though. As the report notes, rent control can hurt potential short-term returns, but over the long haul, it could "provide for more steady, reliable investments to emerge."