emerging trends in real estate 2017 · recognizing the role of the small entrepreneurial developer...

Emerging Trends in Real Estate 2017

Welcome

Bienvenue


A Canadian perspectiveNadia King

Ottawa

February 2017


Emerging Trends is the industry’s “most predictive forecast”

38th annual outlook - 10th anniversary for Canada outlook

Based on over 500 interviews and 1,500 surveys of industry leaders - 115 and 246 in Canada respectively

Sponsored jointly by PwC and the Urban Land Institute

“Innovation is by far our biggest issue. We strive not

only to lead – but also to attempt to remain far ahead of the competition.”

Market Sentiment

4

Emerging Trends: Reflect market sentiment

5

Ongoing Oil and Gas Woes

Technology DisruptorsHold a CompetitiveAdvantage

Affordability onthe Decline

Waiting for Deals

Global Uncertainties

Weigh on the Mind

Renting for the Long Term

More than mixed use, it’s about building communities

Affordability on the decline

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

Quebec City

Winnipeg

Halifax

Ottawa

Calgary

Edmonton

Saskatoon

Montreal

Canada

Toronto

Vancouver

2016 Forecast price-to-income ratio

6TD Economics, Regional Housing Report – August 2016

More than mixed use, it’s about building communities

7

Focus on mixed use communities rather thanstand alone mixed use buildings

Tenants are demanding dynamic neighborhoodsthat combine residential, retail, commercial andpublic spaces

Can lead to partnerships between experts indifferent components

Renting for the long term

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036

Renters Owners

8Canada Mortgage and Housing Corporation

000s of households

Technology disruptors hold a competitive advantage

3.49

3.61

3.82

3.89

3.98

3.99

4.20

1 2 3 4 5

Flexibility

Proximity to customers

Connectivity

Labor Cost

Technology readiness

Rent

Labor availability

Impact on location decision

9

1 2 3 4 5

Not important Limited importance Average importance Important Great importance

Emerging Trends in Real Estate 2017 survey

“We’re getting to the point where if people don’t recognize technologies are existing and, moreover, how to integrate them, opportunities are being missed.”

Global uncertainties weigh on the mind

2.71

3.32

3.66

3.66

3.7

3.95

4.32

1 2 3 4 5

Sharing economy

Global economic Growth

Taxes and regulation

Income inequality

Macroeconomic issues

Interest rates and cost ofcapital

Job and income growth

Economic/financial issues

10

2.77

2.81

3.20

3.33

3.48

3.54

3.72

1 2 3 4 5

Political landscape

Education (cost andavailability)

Immigration

Government budget issues(local/state/federal)

Qualified labor availability

Social inequality

Terrorism/war /epidemics

Social/political issues

2.47

2.63

2.99

3.2

3.87

3.91

3.99

4.3

1 2 3 4 5

Extreme weather

Wellness health features

Water regulation

Sustainability

Housing cost and availability

Infrastructure

Capital availability

Land and construction costs

Real estate /development issues


1 2 3 4 5

No importance

Little importance

Moderate importance

Considerable importance

Great importance

Ongoing oil and gas woes

154.94 173.59

310.83375.01

450.50532.84201.06

236.21

238.44

253.94

267.23

282.12

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1990 2000 2012 2020 (f) 2030 (f) 2040 (f)

World energy consumption, 1990-2040 (quadrillion Btu)

Non-OECD OECD

11

Energy consumption will rebound, but will prices?

US Energy Information Administration

Waiting for deals

11%

38%

52%

14%

62%

23%

0% 10% 20% 30% 40% 50% 60% 70%

Undersupplied

In balance

Oversupplied

Debt capital for acquisition

2017 2016

12

6%

26%

68%

11%

31%

59%

0% 20% 40% 60% 80%

Undersupplied

In balance

Oversupplied

Equity capital for investment

2017 2016


2017 Expected best bets

13


Urban mixed-use developments

Purpose-built multi-family rentals

2017 Expected best bets

14

Industrial property


Senior housing/retirement

homes

Property Type Outlook

15

Retail

Commercial

Condominium

While there are regional variations in the outlook for different property types, developers, investors and property owners did strike some common notes in their assessment.

Investment outlook

3.22

3.28

3.45

3.34

3.47

3.52

3.08

3.17

3.23

3.33

3.38

3.49

1 2 2 3 3 4 4 5 5

Retail

Office

Hotels

Single family

Multifamily

Industrial/distribution

Major sectors

2017 2016

16

3.37

3.60

3.70

3.71

3.73

1 2 3 4 5

Midscale hotels

Medical Office

Urban/high street retail

Age restricted housing/Multifamily

Fulfillment

Top subsectors for 2017


1 2 3 4 5

Abysmal Poor Fair Good Excellent

Development outlook

2.76

2.98

3.31

3.47

3.49

3.65

2.56

2.85

2.89

3.23

3.32

3.57

1 2 2 3 3 4 4 5 5

Retail

Office

Hotels

Single family

Multifamily

Industrial/distribution

Major sectors

2017 2016

17

3.00

3.50

3.71

3.71

3.96

1 2 3 4 5

Economy hotels

Medical Office

Age restricted housing/Multifamily

Urban/high street retail

Warehouse

Top subsectors for 2017


1 2 3 4 5

Abysmal Poor Fair Good Excellent

Markets to watch2017 markets to watch

18

2012 2013 2014 2015 2016 2017

Vancouver 2 4 4 4 1 1

Toronto 1 3 5 3 2 2

Montreal 7 5 9 6 3 3

Ottawa 5 6 6 5 4 4

Saskatoon 6 7 3 8 5 5

Winnipeg 9 8 7 7 6 6

Halifax 8 9 8 9 8 7

Edmonton 4 2 2 2 7 8

Calgary 3 1 1 1 9 9



Playing for Advantage, Guarding the Flank

Nadia King

February 2017

Expectations hitting a plateau?

26.2%

1.9%

56.1%

16.8%

86.9%81.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Abysmal–poor Fair Good–excellent

20

Abysmal - poor

Fair

Good - excellent

2017 Emerging trends in real estate

21

Ready for augmented reality

Transformation through location

Role of the small developer

Labor scarcity and construction costs

A kinder gentler real estate cycle?

Blockchain

Connected cities

Beyond the velvet rope

Housing affordability

Optionality

2017

Where is the new commercial supply?

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Vacancy % Completions as % of Inventory Average 1980 - 2001 Average 2001 - 2016

22

Vacancy %

Completions %

Vacancy

01 – 16 average

80 – 00 average

Completions

A Kinder Gentler Real Estate Cycle?

Reis, Inc : Sum of industrial, office and retail property

One use at a time or two at the same time

23

e-loft example

Washington Post

Optionality

Construction labor gets hard to find

$800

$850

$900

$950

$1,000

$1,050

$1,100

$1,150

$1,200

0.0

5.0

10.0

15.0

20.0

25.0

Dec2000

Dec2001

Dec2002

Dec2003

Dec2004

Dec2005

Dec2006

Dec2007

Dec2008

Dec2009

Dec2010

Dec2011

Dec2012

Dec2013

Dec2014

Dec2015

Recession Construction Unemployment rate Weekly Earnings

24

12-Month moving average %

Labor scarcity in construction costs

Bureau of Labor Statistics

Income growth not keeping up with existing home prices

0

25

50

75

100

125

150

175

200

225

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Median HH Income Median Existing Home Prices Affordability

25

Y/Y Change

Housing affordability

National Association of Realtors, Bureau of Economic Analysis

Affordability

Uneasy equilibrium

Gaining entry beyond the velvet rope

Communities realize the value of diversification

Number of affordable housing initiatives on the November ballot

Dealing with community opposition

Sharing information through social media

26

Gaining entry beyond the velvet rope

Small developers influence on the market

90.7%

6.3%

2.7%0.3%0.02%

Establishments by Number of Employees

0 to 20 20 to 49 50 to 249

250 to 999 1000 +

27

Recognizing the role of the small entrepreneurial developer

Bureau of Labor Statistics

In demand from global/national investors looking to access markets

Superior feel for local market conditions

Feel the impact of restricted access to capital sooner in any cycle

Connected Cities

Infrastructure Economics Philanthropy Growth

28

Connected Cities

Factors contributing to vibrant cities

Augmented reality potential market impact

$11.6

$5.1 $4.7

$4.1

$3.2

$2.6

$1.6

$1.4 $0.7

Projected revenue by industry (total $35.0 billion)

Videogames $11.6b

Healthcare $5.1b

Engineering $4.7b

Live events $4.1b

Video entertainment $3.2b

Real estate $2.6b

Retail $1.6b

Military $1.4b

Education $0.7b

Real Estate

29

Ready for augmented reality?

Goldman Sachs

Markets to watch – The top 10

2016 2017 Market Classification

2 1 Austin 18 - Hour

1 2 Dallas/Fort Worth 18 - Hour

9 3 Portland 18 - Hour

4 4 Seattle 18 - Hour

10 5 Los Angeles Gateway

7 6 Nashville 18 - Hour

11 7 Raleigh/Durham 18 – Hour/Suburban

14 8 Orange County 18 – Hour/Suburban

3 9 Charlotte 18 - Hour

8 10 San Francisco Gateway

30Emerging Trends in Real Estate 2017

Markets to Watch – Who is on the rise?

31

Columbus


Charleston

Good

Fair

Challenged

2017 Property Type Investment Outlook

Industrial Apartment Hotel Office Retail

Hotel

Retail

32

Poor Fair Excellent

Industrial

Multifamily

Office


2017 Property type subsector investment outlook

Medical Office

Midscale Hotel

33

Poor Fair Excellent

Fulfillment Centers

Urban/High Street Retail

Moderate Income Apartment


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