Emerging Trends in Real Estate® 2022 Report, produced by both the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC), demonstrates strong optimism for the industry into the next decade. National real estate trends for buyers, sellers, and industry professionals have been disrupted at a never-before-seen level over the past 24 months by unprecedented demand, urban migration, supply chain interruptions, an extraordinary increase in residential home prices, and an unknown future for office space. In spite of these emerging trends, the outlook is even more positive than it was in 2019 prior to the Pandemic.
2022 Sentiment
Real Estate Industry professionals did better than they expected this past year. People expected there would be an economic downturn fueled by COVID-19, but the results of the Emerging Trends 2022 Report prove otherwise. Furthermore, 84% of survey respondents expect 2022 to be even better than last year’s 79%. This is the highest level of optimism about the coming year since 2016. A speaker at the Chicago Real Estate Summit, Andrew Warren, PwC Director of Real Estate Research, said “It remains to be seen whether that buoyancy is a “sugar high” bounce-back fueled by the massive federal stimulus pumped into the U.S. economy. There are still some storm clouds on the horizon including inflation, labor, supply-chain disruption, geopolitics, and potential tax changes” still looming in the distance.
A Brief Real Estate Downturn
The overall economy has seen a rebound far exceeding expectations. Not only has the economy already recovered to pre-pandemic levels, but growth is forecasted to be at its highest rate in decades through 2022. In fact, Stephann Cotton, CEO and Founder of Cotton & Company agrees, “based on the anticipation of low-interest rates and the lack of inventory we expect to see a strong market over the next few years.”
Flexibility and Change
It is clear the “next normal,” will not be the same. The length of the pandemic is changing fundamental thinking around many issues. Over 50% of survey respondents don’t believe that we will revert to pre-pandemic activity. Individuals have accepted that things are going to change. It has become predominantly clear that the desire for flexibility and convenience will drive change in real estate over the next decade.
The potential to work and live anywhere trend identified in the Emerging Trends 2022 Report will inspire office building tenants to transform the space they have. It will also encourage building transformations, entire markets, and investment decisions. Industry leaders predict office space needs may possibly decrease 15% within the next few years.
The Housing Affordability Crisis
A recession accompanied the housing boom and affordability worsened during the pandemic. There is a sharp contrast between demographic groups, but problems are now highlighted by increased regulation. Things like eviction moratoriums impact the landlords negatively and unfairly. Housing problems do not get solved when the government offers financial assistance to those in need when there is simply not enough housing supply for that audience. Developers cannot build enough due to supply shortages, and highest historic labor, lumber, and land costs. Real estate professionals must shift their focus to alternative ways to build supply.
The Great Migration
The number of highly paid office workers making the move away from their workplace has been limited to date. But potential employee moves could rise as firms delay the return to work or formally make remote work a permanent option. States like Florida, which saw the largest influx of any state, experienced large population migrations from northern urban centers as the remote work option remains a constant. From April 2020 through April 2021, nearly 330,000 people moved to Florida.
Investment in Alternative Sectors
Everybody wants in on the real estate industry. Cheap debt and plentiful equity support real estate values due to mortgage interest rates. Property values have returned to pre-pandemic levels. With the supply and demand factor driving cap rates low, there is a search for higher yields. This all translates to increases in alternative asset investments. Real estate investment trusts (REITs) and private investors are embracing a broader variety of “alternative” sectors including niche real estate sectors like student housing, life sciences, data centers, and self- storage.
The Maturation of Proptech
The pandemic lent itself to the aggressive adoption of property technology. The need to better assess and allocate investments, as well as manage properties, accelerated sharply and this will cause permanent change. Platforms like Opendoor, Redfin, and Zillow ease home transactions through the “instant buying” business model. Shared workspace providers have become some of the biggest commercial landlords globally. Finally, smart platforms assist in the management of residential developments helping run physical systems, tracking performance, and improving wellness with “touchless smart technology.”
Environmental, Social, Governance Factors
Developers and builders are looking for ways to cut their carbon footprint and invest in and social factors, post Pandemic. There is a real acknowledgment on where they buy, how they underwrite, or how they think about assets with more change ahead for 2022 with 82% of respondents stating they are now making decisions taking into consideration the climate and social governance issues.
A New Age of Uncertainty
Confidence in the market still feels volatile despite the prevailing optimism created by the current market. To that point, 70% of respondents feel much more confident about making decisions going into 2022 than they did a year ago but we are still going to be dealing with a little more uncertainty.
Cotton & Company continues to lead the way in navigating through the ever-changing real estate landscape and empowering sales success for a growing portfolio of over 1,700 real estate developer clients throughout the US, and the Caribbean. To learn more visit cottonco.com
