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Trends for 2017

New real estate study outlines how the market will change in the next 12 months

By Jesse Darland

The Urban Land Institute and professional services firm PricewaterhouseCoopers have released their 2017 study Emerging Trends in Real Estate.

The study takes a look at upcoming trends in the U.S. real estate market and is the result of interviews with more than 500 developers, lenders, builders and other insiders conducted by the two groups.

For the past seven decades, the U.S. real estate market has operated in cycles that averaged 58 months in length. By August 2016, the market’s current cycle has lasted 85 months, length unique in recent history. The market doesn’t seem to be cooling, either. That doesn’t mean that prices are headed for a crash, however. Because building overall has been lower, the report offers hope that the current cycle will not end in a recession.

The report describes several markets around the country as particularly volatile, and predicts that many investors will turn to “optionality” as a strategy for ensuring or maximizing investment return. (Optionality, the report explains, means finding multiple values in a single investment. A multifamily tenant, for example, could use their investment as a living space, workspace or both.)

Another unique feature of this real estate market is a tight credit market. As a result, the report finds that smaller developers have found new ways to fit into the market. Among them are providing affordable housing, infilling older neighborhoods and building in smaller markets that the big builders overlook.

The construction labor market continues to face a serious labor shortage, and the report finds no reason that things will change anytime soon. The authors predict that the real estate industry will find ways to market construction industry jobs to new college graduates as “steps on a career path.”

Because the federal government has done little to address the lack of affordable housing (a situation that isn’t likely to change in 2017 due to the recent election), local governments have stepped in. Cities like Chicago and Atlanta have used the zoning process encourage developers to develop below-market-rate housing in exchange for approval of more up-market projects. The study expects this trend to continue in the future.

Finally, the continued growth of internet-connected street lights, HVAC systems, parking meters and other infrastructure means that city planning organizations have more data than ever before on how cities are used. This is expected to change how cities are developed.

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