This article is Part 2 of a two-part series outlining the results of ULI's and PWC's "Emerging Trends in Real Estate 2016" report. You can read Part 1 here.
The lineup of metro markets offering the most promising prospects for the real estate industry continues to change, shift and evolve, sometimes quite dramatically. For 2016, we’re seeing a robust emergence of “18-hour cities,” those secondary and third-tier markets that are suddenly “hip” for both inhabitants, as well as businesses and investors homing in on investment, development and homebuilding opportunities.
In my most recent column, I examined some of the major findings from the newly published “Emerging Trends in Real Estate 2016,” an annual overview by PwC and the Urban Land Institute of studies, analyses and the views of nearly 2,000 industry participants about the state of the industry. Optimism in the industry is up, capital flows remain strong, housing options are varied and offices have become true barometers of change.
But perhaps the most eye-opening change is the emergence of new, hot markets. Industry sentiment in “Emerging Trends” has placed a new city into the top position for 2016, while last year’s No. 1 fell to No. 30. Numerous markets entered the top 20 for the first time, while those traditionally in the top five or 10 slipped to lower positions.
“Emerging Trends” respondents see several factors that promise to have positive and negative influences on markets of all sizes this year:
• Look out for the “villes.” There is an increasing interest in fast-growing markets such as Nashville and Knoxville, Tenn.; Louisville, Ky.; and Jacksonville and Gainesville, Fla. These and similar markets offer faster-growing demographics, economies, concentrations of desirable industries and, in many cases, aggressive development plans. Many enjoy growing urban centers, good in-migration (specifically among desired workers), attractive quality of life and a lower cost of doing business.
Other markets show signs of significant growth as well. Survey respondents in particular like Dallas/Fort Worth, a sentiment driven by several major corporate relocations over the past year, signaling that this may be a good time to invest. Atlanta, Nashville and Portland, Ore. are also seeing company relocations to augment organic employment growth because of their affordability and ease of doing business.
Miami is now firmly back in the top 20 of markets of opportunity, according to “Emerging Trends” respondents, and the position of Orlando, Tampa, southwest Florida and Jacksonville continues to improve. Florida markets offer a diversity of economic opportunities, and are benefiting as the country returns to normal levels of mobility after the housing market collapse.
• Cautiousness over high-priced markets. Survey respondents confirmed that investment performance in markets such as New York and San Francisco has been robust, but some questioned whether it’s too late to invest there, and if the necessary length to hold the investment is prohibitive. Foreign capital coming into these cities has gobbled up trophy assets, a trend which is likely to continue given recent measures easing taxes imposed on foreign investors under the 1980 Foreign Investment in Real Property Tax Act, known as FIRPTA. While big markets continue to do well, they may be priced at a level requiring some extra diligence.
• Housing to see growth. Overall, both single-family and multifamily housing stock has lagged behind household growth in many markets—home ownership rates, under 64 percent, are still below historical averages, according to the U.S. Census Bureau’s quarterly report issued at the end of October 2015. Spurring new housing will be Millennials thinking about buying their first homes, baby boomers downsizing or retiring to new ones and the perceived need for more affordable housing, especially in New York and San Francisco, according to “Emerging Trends.”
So what are the U.S. markets that bear watching in 2016? The top 10 include, from the top, Dallas/Fort Worth (also ranked No. 1 for home-building opportunities); Austin, Texas (also ranked first for development opportunities); Charlotte, N.C.; Seattle; Atlanta; Denver; Nashville; San Francisco; Portland, Ore.; and Los Angeles (also ranked No. 1 for investment opportunities).
As for the rest, see for yourself. The complete free-for-download “Emerging Trends in Real Estate 2016” includes the industry’s assessment of the top 75 markets in order, projections of opportunities in each for investment, development and homebuilding, assessments of capital markets in depth and outlooks by property type.
As always, please let me know what you think. Happy New Year.
R. Byron Carlock Jr. is a principal and the national real estate practice leader at PricewaterhouseCoopers. He can be reached at [email protected].