Real estate industry investors, practitioners and prognosticators shared their thoughts with the Urban Land Institute and PwC, which in turn synthesized the input into their annual research report, Emerging Trends in Real Estate 2016.
As the U.S. economy enters its seventh year of recovery/expansion, it appears the commercial real estate market still has some room to run, although the abundance of capital flowing into U.S. property markets has created high competition and escalating prices in many gateway cities. Total acquisition volume for the 12 months ending June 30, 2015, was $497.4 billion, up 24.6 percent year-over-year. The report notes, “this pace of growth is probably not sustainable,” but also adds the crush of capital seeking deals could be even greater in 2016.
With prices already near record levels in some primary markets, its expected that capital will begin to flow more freely to 18-hour cities, such as Austin, Denver, Nashville, Portland, San Diego and San Antonio, where cap rates are a little higher and pricing and growth prospects provide a greater opportunity for superior yields. In addition, the competitive environment and search for yield will incentivize investors to consider alternative property types and well-located older properties that can benefit from renovation and/or redevelopment.
As part of the Emerging Trends survey, the report produces a ranking of markets based on their prospects for investment, development and home building. And, combining all three components, markets are ranked for their “overall real estate prospects.” While the Dallas/Fort Worth market ranked No. 1 overall, Los Angeles was rated the No. 1 market for investment.
Top 10 U.S. Markets to Watch
1. Dallas/Fort Worth (2, 3, 1)
2. Austin (4, 1, 2)
3. Charlotte, N.C. (11, 5, 4)
4. Seattle (3, 10, 5)
5. Atlanta (5, 6, 8)
6. Denver (8, 13, 3)
7. Nashville (7, 2, 14)
8. San Francisco (9, 14, 12)
9. Portland, Ore. (10, 7, 12)
10. Los Angeles (1, 8, 25)
Note: Numbers in parentheses are rankings for, in order, investment, development and home building.