Urban Land Institute and Pricewaterhouse Coopers recently released their annual real estate analysis report titled “Emerging Trends in Real Estate-The Outlook for 2016”. Just as its name suggests, the report presents a comprehensive analysis of the predicted real estate trends for 2016 in the United States and Canada, with a focus on both residential and commercial properties. The exclusive report, which was compiled after conducting surveys and interviews on various industry stake-holders, came up with findings which depicted the year 2016 both as an extrapolation of 2015 and as a unique year with new trends.
One of its highlights was the fact that commercial real estate is gradually and exceedingly being taken over by small businesses. In the last couple of years, commercial real estate has almost been entirely dominated by large firms. The year 2015, however, saw a trend that’s expected to blow up in 2016, as firms with less than 50 people continue outpacing large corporations. Through a press release, Mitch Roschelle, a PwC partner, supported this finding by indicating that small businesses are increasingly emerging as the primary growth engine for the United States economy, in an industry where the focus is gradually shifting from big cities. As a result, disruptions are expected in the office sector as new sets of space needs continue evolving to accommodate these small businesses.
The report further focuses on other expected trends which will affect both professionals and stake-holders in the real estate industry. To help you comprehend them, and consequently get a vivid picture of what the coming year holds, here are the major predicted real estate trends for 2016:
Increased Application of Human Judgment
Real estate marketers and other stakeholders have exceedingly adopted developing technologies over the years as a means of improving their strategies. According to data gathered by Easy Agent Pro, real estate agents spend an average of $845 each on technologies like contract software, tablets, cell phones, email, note taking apps, CRM, social media, listing databases, and property management software- all of which are meant to enhance their businesses.
Unfortunately, at the moment, only a handful of real estate stakeholders know exactly how to leverage different technologies and big data by applying human judgment on computer generated information. A majority of them blindly use technology to make decisions on their businesses and subsequent strategies. As a result, the current real estate market is significantly being controlled by computers. This however, going by the PwC report, is set to change in 2016 as more agents begin using technology not as an alternative, but rather as a supplement. As its authors put it, although computers have contributed immensely, real estate always needs human evaluation to make good, informed judgments.
New Capital, New Investments
It is no secret that the real estate market in the United States is currently booming and increasingly attracting investors. Through separate surveys, CoreLogic estimated a 5.9% annual increase in home sale prices and National Association of Realtors recorded an 8.9% increase in the median price between 2014 and 2015. With such promising numbers, it’s expected that capital will continue pouring into the real estate market in 2016, possibly surpassing the 2015 all-time high acquisition volume, which stood at $497.4 billion by the month of June- which was an increase of 24.6% compared to the previous year.
Although capital influx is a good thing for the real estate industry, it means more problems for real estate professionals- they have to figure out where to invest the extra funds to generate equally good, if not better, returns. According to the report, they are consequently expected to channel the funds to alternative properties, like medical offices, data centers, and senior housing; redevelopment and renovation of older spaces; alternative assets; and additional markets, particularly 18 hour cities. As a matter of fact, one of the professionals interviewed during the survey indicated that the current market is indeed competitive in terms of capital placing and things are expected to escalate by mid next year.
Increased Firm Specialization
Over the years, mergers have increasingly grown in popularity as firms continue partnering to boost their prospects of dominating the ever expanding real estate industry. And the trend has definitely seen small companies grow into mid-sized and large firms with expanded clientele bases and increased capital. As many small firms continue drawing up merging contracts, a new trend is now on the rise, and will possibly attract many more companies in 2016…introducing firm specialization.
Some firms have now discovered that they don’t have to merge to make better returns- small could possibly be better. So, how will this work out for them?
Real estate is an extensive industry composed of different interconnected niches. By specializing in separate niches, some small real estate firms stand to make way more than they would as large, consolidated companies. In fact, some mergers are predicted to start breaking up in the coming year as partners begin embarking on specialized projects. The year 2016 will therefore see more firm owners comparing the benefits of merging against specialization.
Urban Agricultural Land
Urban land is already a bit too synonymous with property development. According to a significant number of land owners, the biggest returns can only be achieved by developing properties and subsequently selling or renting them out. Only a few people use their urban pieces of land for agriculture and food production.
Due to the ever decreasing area of urban agricultural land and skyrocketing desire for fresh food, this trend is predicted to take an opposite turn in 2016, particularly in cities experiencing stagnant resident income. According to the report authors, increased agricultural practice in urban areas is just getting started, and will possibly grow considerably in the year 2016 as more people continue realizing the potential returns they could rip from significantly low agricultural capital. One of the agricultural ventures in New York City for instance, is already reaping a lot from its 300 tons of vegetables produced in three hydroponic operations in Brooklyn and Queens. More real estate professionals are expected to begin evaluating possible returns they could generate by replicating this, and subsequently change their strategies by the end of 2016.
Although the United States is a progressively developed nation, the ASCE’s Infrastructure Report Card gave the country a D+ primarily due to poor infrastructural improvement policies. Taking note of this, Urban Land Institute and Pricewaterhouse Coopers report indicates that the current conventional infrastructural development approach in the U.S is “disheartening”. Fortunately, some cities and groups have already taken the matter into their own hands and are coming up with creative infrastructural solutions like bus rapid transport systems in cities like Omaha, Portland and Minneapolis.
Predictably, the year 2016 will see increased public-private partnerships embark on additional infrastructure development projects which will significantly affect the real estate industry. As a matter of fact, a couple of real estate investment trusts are already drawing up infrastructural development plans to boost the overall marketability of their respective properties.
Through a study that highlighted automobile patterns in the United States over a period of more than 10 years, the Department of Transportation and American Automobile Association Studies established that the average regular distances travelled by people aged below 34 years had dropped by 23% in 2010 compared to 1996. Additionally, the number high school seniors with legal driving licenses had fallen from 73% over the same period. Another report by Phineas Baxandall of the U.S PIRG Education Fund, and Tony Dutzik and Benjamin Davis of the Frontier Group, further supported these findings by establishing that the number of miles travelled by the same age group highlighted by the former had dropped from 10,900 miles per capita in 2001, to 7,900 miles per capita in 2010. Therefore, Americans are evidently opting for alternative modes of transport, including cycling, walking and bus rapid transport systems.
These findings have ultimately sparked a debate in the real estate industry, as professionals begin weighing in the possibility of reducing the parking spaces in their properties. The general feeling is that there’s already excessive parking slots spread across major property developments in the US, which according to many is “sub optimal use of land”. Cities like Los Angeles are already considering reducing the amount of land occupied by parking spaces by adopting developing parking technologies like automated stack parking. The year 2016 will see more cities include this agenda in their development proposals, as they seek to free up their parking areas for property development.
Alternative Housing Options
Finally, as the report further indicated, 2016 will be a year that will be marked by an influx of a new category of buyers, seeking alternative housing solutions like cohousing and microhousing. At the moment, the real estate industry is dominated by single-family rentals, which are considerably larger compared to cohousing and microhousing solutions. The latter type of solutions will be on demand due to the increasingly growing millennials population that largely prefers smaller and affordable units.
Overall, it’s expected that real estate will continue growing in 2016 as it has in 2015. Although these trends will affect the industry in one way or another, it’s predicted to maintain its appreciation rate, which will see house prices soar even higher over the coming year. Of course with such projections, investors are expected to continue joining the bandwagon, hoping for the best as 2015 dawns.
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