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Top Takeaways From The New ULI/PwC Emerging Trends Report

After a few years of turmoil in the real estate industry and the wider economy comes The Great Reset, according to Emerging Trends in Real Estate 2024, a report published Wednesday by the Urban Land Institute and PwC. 

The idea that the industry is going back to normal after the pandemic is as gone as the optimism of 2021 and 2022, according to the report, which is based on an extensive survey and scores of interviews with experts and focus group participants. Now the industry expects new normals to solidify, but there is a lot of uncertainty about exactly what a reset means, as the post-Global Financial Crisis days of robust rent growth, declining cap rates and rising property values are over.

The following are 10 trends detailed by the report, with comments exclusively for Bisnow from Anita Kramer, senior vice president of ULI’s Center for Real Estate Economics and Capital Markets and a longtime editor of the report.


5 Days A Week Is Good And Dead

Employers' Sisyphean efforts to turn back the clock in the office will continue to bear little to no fruit, representing a social and economic shift with an importance that can't be overestimated, Kramer said — and not just for office landlords.

“People were noticing various pieces of hybrid schedules during the last few years, but now it has really come into focus as so pervasive and so impactful,” Kramer said.

The shift to remote work is perhaps the single most important trend in property use since the Federal-Aid Highway Act of 1956 spurred mass suburbanization in the U.S., the report asserts. Remote work is changing regional migration patterns, household formation rates, the kinds of housing people want and more, like draining vitality out of downtowns and funneling it to close-in suburbs and smaller cities, according to the report.

Retail Reaches A New Normal

The 2010s weren't kind to U.S. retail, as e-commerce ate into sales. But in 2024, retail will continue to exceed expectations, a result of tenant demand skyrocketing over the past 18 months.

“In retail, we're beyond worrying about the structural impact of e-commerce,” Kramer said. “There just doesn't seem to be that concern. The impact has happened. Now we're really looking at the cyclical issues. There's a bifurcation in retail, which there has been for quite some time, but there's retail that is quite strong.”

That bifurcation is occurring between Class-A regional shopping centers and grocery-anchored retail, which are enjoying healthy traffic, and suburban strip malls, according to the report.

Some retail chains may not reach their growth goals next year simply because of the lack of available space in the size, formats or locations that they want, ULI and PwC found.

The Debt Threat

CRE capital has become expensive and much harder to get, cutting into sales and broadly undermining project feasibility, the report says. Distress levels are still low, but a liquidity crisis looms.

“How can you even want to borrow when interest rates are not completely clear?” Kramer said. “There certainly is less availability because lenders don't know the value of what they're lending on.”

Rapidly rising federal debt could potentially crowd out private investments in the industry, leading to slower economic growth and even higher interest rates, the report warns.

AI Is Bigger Than Ever, But It's Mostly Still Potential

“Despite the hype and popular attention on artificial intelligence, actual CRE uses appear to be limited and mostly mundane to date,” ULI/PwC reported.

“The real changes are still up ahead,” Kramer said.

The potential includes models to help predict property climate risks, identify investment opportunities and formulate higher-performing portfolios, among other more sophisticated tasks, according to the report.

In time, AI will displace some CRE employees, especially those doing more routine tasks. Jobs that still require a human touch — brokers who negotiate deals, for instance — won't be so easily replaced.

Core Isn't Core Anymore

Long-established norms about how CRE portfolios should be put together, including the definition of “core,” are crumbling, the report says. The traditional pillars of CRE portfolios, such as downtown offices and older regional malls, are in decline, and fund managers must find replacements.

“Fund managers are considering a range of newer product types previously viewed as niche but offering more compelling returns,” the report says.

Replacements include data centers, student housing and medical office. More conventional core holdings such as industrial are expanding to include the likes of cold storage and self-storage.

Dallas skyline

People Are Still Flocking South

The Sun Belt continues to attract households, firms and investors eager to enjoy fewer regulations and lower taxes, the report says, in a dynamic that feeds on itself as the labor force continues to grow in those places.

The places with the best overall real estate prospects tend to be in the Southeast and Southwest: Nashville, Phoenix, Dallas-Fort Worth, Atlanta and Austin are the top five, the report says. The best homebuilding prospects aren't much different, highlighted by markets like Austin, San Antonio, Washington, D.C., Atlanta and Dallas-Fort Worth.

Multifamily: Build, Baby, Build

The multifamily sector has been vexed by most of the same headwinds as other commercial properties, such as mortgage rates putting pressure on values and refinancings, rising expenses and the looming possibility of a demand downturn, ULI/PwC reported.

Some segments of multifamily face oversupply, especially in the Sun Belt and at the higher end of the market. Developers couldn't resist in these recent years of booming demand, and now it is coming back to haunt many markets. But there is hope yet.

“The tone in multifamily housing is much less negative than other segments of the market because of long-term demand drivers that should enable it to maintain steady performance,” the report says. “Although the post-pandemic demand wave has decelerated, absorption remains strong.”

Eco-Anxiety Comes Home

Heat records continue to be broken, and the number of billion-dollar climate events is rising, which will continue to pose higher costs and other risks to property owners.

“A critical industry problem is that most market participants have a decision time horizon that is much shorter than needed to address physical risks due to climate change,” the report says. “Even if it makes financial sense over the lifespan of a building to enhance its resilience, the risk of a climate event occurring in any particular year within the anticipated hold period is minimal, and many owners believe the costs would be covered by insurance anyway.”

That might encourage owners to ignore climate risk, which might not be wise in the long run. Regardless, the report says, there are more urgent reasons to address climate risks, including government environmental, social and corporate governance mandates in the top markets, along with pressure from investors who are more knowledgeable about climate risk than before.

Out Of Nowhere, Insurance Is An Issue

Historically, insurance has been only a minor concern for CRE owners, accounting for only about 3% of rent, but rising costs and declining availability mean the industry suddenly has to pay attention, the report says. Moreover, the impact of higher insurance costs isn't spread equally.

“There's a lot of discussion about insurance,” Kramer said. “As the report points out, large portfolios can get a level of insurance that they may not experience the impact of high costs as dramatically as small companies with a single or smaller number of properties.”

The upshot of higher insurance costs will probably be a lower supply of new housing and industrial space, since these kinds of properties tend to be in higher-risk places, such as on the coastlines or near forests, the report says.

Survey Results: What Worries CRE Most

When considering strictly development and real estate issues, participants in the report were most worried about construction costs, including labor, materials and land. The quality of labor is also a major concern, with state and local regulations and taxes also important.

As for financial issues, the cost of capital is of the most concern, along with its availability. Other major concerns include the direction of job growth, the availability of labor and inflation. The industry is less worried these days about taxes or trade conflicts, the survey found.

The top social and political concerns are housing costs and availability, immigration and political extremism, though federal and state budgets are also worrying. Concerns about a new pandemic or terrorism have receded for now.