The Urban Land Institute (ULI) and PwC US recently released “Emerging Trends in Real Estate 2024,” an annual report unveiling critical data and trends in the development sector.
In its 45th edition, the report’s overarching theme is “The Great Reset,” determining that the industry must form new “norms” and can no longer rely on past benchmarks to determine how the market will function in the future.
The report includes proprietary data and insights from more than 2,000 leading real estate industry experts, exploring shifts in the property sector since the pandemic, changing investor sentiment toward climate risks, the emergence of impact investing and other real estate issues within the United States and Canada.
“Despite economic headwinds and challenges with obtaining credit, there are opportunities available for high-quality properties that meet the needs of investors and tenants,” said Andrew Alperstein, a leader with PwC US’ real estate practice. “Firms must learn to ride out the current short-term risks and adapt their growth strategy to succeed in this period of higher-for-longer interest rates.”
Emerging Trends in Real Estate Report’s Top Trends
Retail outlook is exceeding expectations. Retail tenant demand has skyrocketed over the past 18 months. The United States closed 2023 with roughly 35 million square feet of new retail product across all shopping center types. The industry is coming to realize that the nation will keep shopping for most of its goods and many services in shopping centers indefinitely, even if e-commerce continues to take market share away from in-store retailers – due in most part to a collective reassessment of the sector than by any dramatic recent shifts in supply and demand dynamics.
Hybrid work is here to stay. The real estate industry has largely accepted that the office sector will not be returning to its pre-pandemic state, as employee work and commuting preferences are standing firm. Office buildings have lost their appeal to investors with sales transactions down more than twice as much as other major property types. While there is a call for repurposing high-vacancy office buildings, industry leaders caution that not all can be economically converted, and a better solution may be demolishing them and repurposing the land.
It’s all about the debt. Rapidly rising federal debt could potentially “crowd out” private investments in the industry, leading to slower economic growth and higher interest rates, both of which would create long-term delays in property construction, investments and returns. Primary debt sources such as originations have fallen, enabling private debt sources to step in where others refuse to lend. Credit has become more expensive and strictly underwritten, leading borrowers to hold onto their existing debt. Despite the lack of credit, some investors are cautiously pursuing deals and lining up to take advantage of undervalued assets. The industry is seeing its highest “buy” rating since 2010, signaling a favorable entry point for acquisitions after a decade of unabating appreciation.
CRE learning to navigate AI. AI advancements are showing promise in the real estate industry, offering capabilities such as enhancing the property search and analysis process, reshaping how investors assess potential investments, improving the customer experience and streamlining due diligence and fraud detection in real estate transactions. However, despite AI’s tenured use in the industry, many of its capabilities are still largely unknown to CRE experts with a lack of understanding and AI misinformation being cited as key barriers to adoption.
Adapting for future climate challenges. The number of billion-dollar climate events continues to rise and growing government regulations and ESG mandates, especially in leading CRE markets, mean property owners and managers have more reasons than ever to make ESG a priority. A way to achieve more sustainable development is to reposition the development and design process. Not every building will be converted for each of its uses; some assets will simply become obsolete and need to be demolished. Architects and developers are beginning to explore design for disassembly, which could maximize economic value and minimize environmental impacts of destruction and embodied carbon through reuse, repair, remanufacture and recycling.
Read the full report at pwc.com.
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