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5 DC Takeaways from ULI's Emerging Trends

The Urban Land Institute's Emerging Trends Report for 2016 was just released, and one of the most-watched pieces of research in our industry is filled with good news nationally. Not so much when you narrow it down to our region.

1. DC is slipping.


One of ULI’s big takeaways is the growth of secondary cities like Nashville and Dallas-Fort Worth, which is pushing DC down ULI’s market rankings. The District itself slipped to No. 24, the lowest of the big six markets, behind New York, San Francisco, Boston, Seattle and Chicago. Northern Virginia slipped to 32 and suburban Maryland landed at 51, behind Louisville and Albuquerque. ULI says, “Survey respondents remain cautious about the economic condition of the market and the amount of new supply still being delivered.” One respondent said investors would have to plan on holding their assets in major cities for at least 10 years, which is exactly why foreign investment is so prevalent in DC: that’s exactly what overseas investors want to do. And while everyone loves to read ULI’s market-specific breakdowns, DC didn’t get one of those: ULI only gives market reports for its top 20 cities.

2. DC's got what everyone wants.


Of all 75 markets ULI analyzed, DC was No. 1 in a very key category: Millennials. A whopping 38.2% of DC’s residents are between 16 and 35 years old, better than Manhattan (35.5%), Brooklyn (31.7%) and Austin (31.7%), the next-best markets. Maybe it’s no wonder a South Park episode about gentrification hit closest to home for DC.

3. The Maryland suburbs aren’t keeping up.


For the 29 markets in the South region, the Maryland suburbs of DC ranked 20th in local outlook overall, but the picture becomes more bleak if you look at just the office market. Its office investment prospect score of 2.42 ranked below every other market in the region, save for Virginia Beach/Norfolk and Daytona Beach, FL. Markets like Birmingham, AL, and Columbia, SC—not exactly heavyweights—are outpacing the office investment ratings of Montgomery and Prince George’s counties.

4. Regionwide, spending is going up, up, up.


Here’s how one Wall Street adviser put it to ULI: “There is going to be a long wave of continued capital allocation” toward real estate (perhaps there's evidence of that in this busy pic of the power bar we snapped at ULI this week). In the DC region year-to-date, investors have traded $5.1B worth of properties, already outpacing last year’s acquisitions by a significant margin. Even in the Northern Virginia suburbs, investors paid more than $1B for office buildings in the first half of 2015. A significant majority of these purchases come from private equity and foreign money, two sources driving prices out of reach of some institutional and public investors.  

5. All this growth and money seems sustainable.


After 2008, it’s still natural to feel all this talk about how much money is coming in is too good to be true. Interest rates are expected to go up at some point—it’s anyone’s guess as to when, exactly—but the recovery is still happening. One positive: the financial sector seems to have learned its lesson, to a degree. “What I have seen over the last three years is a lowering of expectation on return,” one banker told ULI. Having more realistic expectations is the key to sustainable growth. Put another way: when there’s no bubble, there’s no burst.