06 Dec Highlights: Emerging Trends Report 2023

Photo by ®Bonnie Meisels

Highlights: Emerging Trends Report 2023 – by PWC & Urban Land Institute

Highlights: Emerging Trends Report 2023 by PWC & the Urban Land Institute:

The report is a whopping 109 pages long but worth the read. It goes into great detail and has tons of data on past market performance, inclusive of the market outlook for 2023. U.S. locations are classified as “Magnets, The Establishment, Niche, Backbone, and then further classified as Sun Belt, 18 hour cities, supernovas, etc .

These classifications are also ranked by location and property sector, and demand. It succeeds in identifying possible opportunities or waning demand. Many segments of real estate such as data centers, senior homes, multifamily, industrial, and residential, warehouse, and storage centers are reviewed as well.

To quote the report, “There’s always a new bull market somewhere. You’ve just got to go find it.”

Key Takeaways & Highlights  from the PWC & The Urban Land Institute:

“1)The Normalization of markets and returns, ULI’s Center for Real Estate Economics and Capital Markets expect total returns to drop to 3.8 percent in 2023, and recover to a moderate 7 percent in 2024. Returns and prices of most assets are declining as cap rates rise and transaction volumes fall from record levels while demand returns to more sustainable levels.

2)Despite Covid, some property markets far outperformed expectations and historical norms

3)Housing market is set to cool

4)The “Amazon Pause” Amazon, along with other major retailers, have been cutting back their distribution expansion plans.

5)For some hotels and retailers the general consensus is that if you’ve survived to this point, the future probably looks good. Winners will be the resourceful retailers that can provide consumers with compelling shopping experiences. But the permanent shift to greater online spending ultimately means that fewer shopping centers and retail space can survive.

6)Rising interest rates and cost of capital is one of the top economic concerns.

7)We are obviously tired of exercising and cooking alone at home, so gym memberships have returned to
historical levels while restaurant sales are back above groceries.

8)The current personal lifestyle revision is changing how apartments are being viewed, how single-family residential is being considered, how office is being utilized, and where corporations are heading.

9)Many investors have moved to the sidelines—or to other types of assets like equities and bonds, Rising interest rates are making acquisition and construction debt more expensive, just when operating incomes seem destined to slide as the economy weakens. Debt is getting more difficult to obtain and the old adage goes, “Cash is king”.

10)Uncertainty = Hesitancy, everyone wants to better understand where things are headed and when inflation can be tamed. With more clarity there will be less volatility, and more opportunities to buy.

11)This period is viewed as more of a lull than a crash as balance sheets are generally strong and leverage is low

12)There is a real crisis of housing affordability and undersupply made worse by higher construction costs and labor shortages.”

13)New federal infrastructure spending provides the opportunity to replace and expand critical urban infrastructure to rebuild cities and spur new development—and address historical inequities.

14)Climate Change’s Growing Impact on Real Estate. The earth is getting hotter and extreme weather is becoming more frequent severe.”

Other Notable Insights

1) “Existing tax laws are stacked against the individual homebuyer. Explains one academic, “Investors are allowed to not only deduct everything, but they can depreciate the unit. They also have access to lower cost of capital.” In sum, institutional buyers assembling “horizontal apartment” portfolios can afford to pay more to be the high bidder for homes. And they do. Investors account for one in five homebuyers, up by a third compared with before the pandemic.

2)Technology can play a bigger role in solving some of the challenges related to housing affordability and chronic undersupply. “It brings innovation and cost efficiencies to a sector that has been notoriously slow to change. Most notable are different approaches to prefabricated and modular housing in which much or all of the house is built in a factory and then assembled on the homesite. These methods can dramatically reduce the need for labor and shrink production times at more affordable costs.”

3)”With less appetite for riskier investments, investors and developers seem to be preferring three distinct types of opportunities:

● The security of major product types with the strongest demand fundamentals, notably industrial and multifamily housing, which essentially tie for top investment ratings in this year’s Emerging Trends survey;

● Best-quality assets in sectors undergoing significant demand disruption, especially retail and office; and

● Narrowly targeted subsectors (like student housing) and newer “niche” asset types (like single-family rentals).

Where are the best places to invest in Canada in 2023 via PWC 

• Amongst the major Canadian cities, the Vancouver real estate market ranks highest. The Conference Board of Canada predicts a level of growth of 3.3% in 2023
• Strong population growth sees a real estate boom in Toronto with some housing starts fall in 2023 before rising in 2024. The City of Toronto to raise residential development charges by 46% by 2024
• For Montreal the Conference Board of Canada is predicting modest growth of 2.7% in 2023. Low vacancy and healthy rental rates are driving construction growth in this segment.

Read the full PWC report on Canada here

Access the full Emerging Trends Report 2023 by PWC & the Urban Land Institute below:

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