1、EMERGING TRENDS IN REAL ESTATEUnited States l Canada2023Emerging Trends in Real Estate 2023A publication from:iEmerging Trends in Real Estate 2023Contents 1 Notice to Readers 3 Chapter 1 Taking the Long View 4 Normalizing 7 Still,Weve Changed Some 9 Capital Moving to the Sidelines or to Other Assets

2、 12 Too Much for Too Many 16 Give Me Quality,Give Me Niche 18 Finding a Higher Purpose 20 Rewardsand Growing Painsin the Sun Belt 22 Smarter,Fairer Cities through Infrastructure Spending 24 Climate Changes Growing Impact on Real Estate 26 Action through Regulation?35 Chapter 2 Property Type Outlook

3、36 Multifamily:A Bumpy Ride and a Bumper Crop 47 The Future of Single-Family Housing 50 Industrial/Logistics:Strong Fundamentals Persist while Capital Markets Adjust 53 Office:Desperately Seeking Clarity about Its Future 65 Retail 68 Hotels 73 Chapter 3 Markets to Watch 79 Grouping the Markets 93 Ch

4、apter 4 Emerging Trends in Canadian Real Estate 94 Costs and Capital:A Period of Price Discovery amid Major Shifts for Real Estate 96 ESG Performance:A Critical Issue for Canadian Real Estate 98 Housing Affordability:A Growing Challenge for Real Estate Companies 104 Property Type Outlook 109 Markets

5、 to Watch 114 Expected Best Bets for 2023 115 Interviewees 119 Sponsoring OrganizationsEmerging Trendsin Real Estate2023iiEmerging Trends in Real Estate 2023Editorial Leadership TeamAaron Sen*Abhi JainAbhinav Ravi*Adam Modhtaderi*Adam Rose*Alec Watson*Alex Howieson*Alex SchraftAli Abbas*Allan ChengA

6、lyssa GillandAndrea Ades*Andrew AlpersteinAndrew Popert*Andrew SimiAnnabelle Lafortune*Anthony Di Nuzzo*Ashley Somchanh*Ashley Yanke*Avery PartiAvi ShahBenjamin RoyBill StaffieriBilly Ampatzis*Blake BylBrendan SmithBrendan WhiteBrian NessBryan Allsopp*Calen ByersCam MonizCamille Matute*Charles Campa

7、nyChris BaileyChris DietrickChris EmslieChris KavanaughChris Vangou*Christine AugustaChristopher BaileyChristian SeraoChristopher EmslieChristopher MillCindy Wu*Claire Bennet*Cosimo Pellegrino*Dan GenterDan PiconeDan RyanDaniel DArchivio*Daniel LawsonDanielle Aucoin*Danielle Desjardins*Darren Speake

8、*David BaldwinDavid HughesDavid SwerlingDavid Whiteley*David Yee*Derek Hatoum*Donald Flinn*Doug StruckmanDylan AndersonEdouard Godin*Emily PillarsEric Desmarais*Eric Lemay*Ernie Hudson*Evan CohenFrederic Lepage*Gordon Ashe*Graham McGowan*Hannah TamHenry Zhang*Hilda GarciaHoward Quan*Isabelle MorganI

9、tisha JainJake WileyJano Van Wyk*Jasen Kwong*Jason KaplinJeffrey TaverasJen Lawson*Jeremy LewisJessica GordonJohn CrossmanJohn Matheson*John Mormile*John RosanoJonas PittmanJonathan ConnollyJonathan Osten*Joseph Moyer*Joshua LevineJoshua RubinJoy Dutta*Justin Belanger*Justin Mukai*Kartik Kannan*Keeg

10、an LandryKen Griffin*Kendall BreshearsKhaldoon Iqtait*Kristen ConnerKristy RomoLaura Lewis*Laura LynchLauren GarrettLeah WaldrumLee-Anne Kovacs*Lee OverstreetLily BannisterLuda Baiden*Manisha Chen*Marilyn Wang*Mario Longpre*Martin Bernier*Martin Labrecque*Martin SchreiberMatt ManzaMatthew BerkowitzM

11、atthew NicholsMatthew RosenbergMax WorobowMaxime Lessard*Meredith DeLucaMichael LorangerMichael Shea*Michelle Zhu*Mike Harris*Minh Ngo*Monique PerezMunezeh WaldNadia King*Natalie Cheng*Nicholas Mobilio*Nick Ethier*Nick WorrallNicole StroudNik Woodworth*Nikki Mills*Peter Harris*Philip Heywood*Philipp

12、e Desrochers*Philippe Pourreaux*Rabiya Adhia*Rachael FabianRachel KleinRahim Lallani*Renee SarriaRicardo RuizRichard Martin*Richard Probert*Rick MunnRob SciaudoneRobert SciaudoneRon Bidulka*Ronnie De Zen*Ryan DooleySabrina Fitzgerald*Saket Ayala*Samay Luthra*Santino Gurreri*Scott McDonald*Serena Low

13、eSeth PromiselShauna Peck*Shivang Mahajan*Spyros Stathonikos*Stephan GianoplusSteve Hollinger*Tatiana SmithTim BodnerTina RaetherTom WilkinTressa Teranishi*Trevor Toombs*Warren MarrWesley Mark*Based in Canada.PwC Advisers and Contributing ResearchersEmerging Trends ChairsR.Byron Carlock Jr.,PwCW.Edw

14、ard Walter,Urban Land InstituteEditors-in-ChiefAndrew Warren,PwCAnita Kramer,Urban Land InstituteAuthor,Chapters 1 and 3Andrew J.NelsonAuthors,Chapter 2Garrick Brown,RetailHeather Belfor and Ahalya Srikant,IndustrialLesley Deutch,Single-Family ResidentialPaul Fiorilla,OfficeJohn McManus,Multifamily

15、ResidentialAvikar Shah,HotelsAuthors,Chapter 4Glenn KauthPeter KovessyContributors Paul AngeloneLindsay BruggerJohn ChangMike HargraveRoberto Hernandez David LiggittBeth Burnham MaceHilda MartinOnay PayneAmber SchiadaLuke SmithMaureen WatersCarl Whitaker Cody YoungSenior AdvisersFred Cassano,PwC,Can

16、adaBraiden Goodchild,PwC,CanadaMiriam Gurza,PwC,CanadaFrank Magliocco,PwC,CanadaChristopher J.Potter,PwC,CanadaSteven Weisenburger,PwC,U.S.Project Staff,ULI Center for Real Estate Economics and Capital MarketsJennifer Milliken,DirectorNolan Eyre,Senior AssociateULI Editorial and Production Staff Jam

17、es A.Mulligan,Senior EditorDavid James Rose,Managing Editor/Manuscript EditorBrandon Weil,Creative Director/Cover DesignerDeanna Pineda,Muse Advertising Design,DesignerCraig Chapman,Senior Director,Publishing OperationsEmerging Trends in Real Estate is a trademark of PwC and is regis-tered in the Un

18、ited States and other countries.All rights reserved.At PwC,our purpose is to build trust in society and solve important problems.PwC is a network of firms in 155 countries with more than 327,000 people who are committed to delivering quality in assurance,advisory,and tax services.Find out more and t

19、ell us what matters to you by visiting us at .2022 PwC.All rights reserved.PwC refers to the U.S.member firm or one of its subsidiaries or affiliates,and may sometimes refer to the PwC network.Each member firm is a separate legal entity.Please see for further details.September 2022 by PwC and the Ur

20、ban Land Institute.Printed in the United States of America.All rights reserved.No part of this publication may be reproduced in any form or by any means,electronic or mechanical,including photocopying and recording,or by any information storage and retrieval system,without written permission of the

21、publisher.Recommended bibliographic listing:PwC and the Urban Land Institute:Emerging Trends in Real Estate 2023.Washington,D.C.:PwC and the Urban Land Institute,2022.ISBN:978-0-87420-481-01Emerging Trends in Real Estate 2023Notice to ReadersEmerging Trends in Real Estate is a trends and forecast pu

22、blication now in its 44th edition,and is one of the most highly regarded and widely read forecast reports in the real estate industry.Emerging Trends in Real Estate 2023,undertaken jointly by PwC and the Urban Land Institute,provides an outlook on real estate investment and devel-opment trends,real

23、estate finance and capital markets,property sectors,metropolitan areas,and other real estate issues throughout the United States and Canada.Emerging Trends in Real Estate 2023 reflects the views of individuals who completed surveys or were interviewed as a part of the research process for this repor

24、t.The views expressed herein,including all comments appearing in quotes,are obtained exclusively from these surveys and interviews and do not express the opinions of either PwC or ULI.Interviewees and survey participants represent a wide range of industry experts,including investors,fund managers,de

25、velopers,property compa-nies,lenders,brokers,advisers,and consultants.ULI and PwC researchers personally interviewed 617 individuals,and survey responses were received from more than 1,450 individuals,whose company affiliations are broken down below:Private property owner or commercial/multifamily r

26、eal estate developer:35%Real estate advisory,service firm,or asset manager:21%Private-equity real estate investor:11%Bank or other lender:7%Construction/construction services/architecture firm:7%Homebuilder or residential land developer:6%Investment manager/adviser:5%REIT or publicly listed real est

27、ate property company:3%Private REIT or nontraded real estate property company:2%Other entity:2%Throughout this publication,the views of interviewees and/or survey respondents have been presented as direct quotations from the participant without name-specific attribution to any particular participant

28、.A list of the interview participants in this years study who chose to be identified appears at the end of this report,but it should be noted that all interviewees are given the option to remain anonymous regarding their participation.In several cases,quotes contained herein were obtained from inter

29、view-ees who are not listed in the back of this report.Readers are cautioned not to attempt to attribute any quote to a specific individual or company.To all who helped,the Institute and PwC extend sincere thanks for sharing valuable time and expertise.Without the involvement of these many individua

30、ls,this report would not have been possible.2Emerging Trends in Real Estate 20233Emerging Trends in Real Estate 2023Chapter 1:Taking the Long ViewInterest rates are rising,economic clouds are darkening,and real estate deal flows are sinking because buyers and sellers cannot agree on pricing.But for

31、all that,most commercial real estate professionals we interviewed for this years Emerging Trends remain reasonably upbeat about longer-term prospects.Not everyone is as sanguine as the CEO of an investment management firm who provided our opening quote,and there certainly are some troubling risks ah

32、ead for the industry.But the consensus mood seems to be one of cautious optimism that we will ride out any near-term slump and be well positioned for another period of sustained growth and strong returns.It makes sense that real estate experts would take the long view given the nature of real estate

33、 assets:buildings take a long time to conceive and develop.Even simply acquiring one typically takes more time(and effort)than buying just about any other type of financial asset,and they are usually held for longer dura-tions.Still,the willingness of so many people in the industry to look beyond so

34、me of the cyclical headwinds is striking.Says the head of advisory services for a commercial real estate(CRE)analytics firm,“The recessionif we go into onewill obviously impact some markets worse than others,but its just like any-thing else.Well look back in 10 years,and the prices that seem astrono

35、mical today will seem like a bargain 10 years from now.”An Economic Rorschach TestBy one popular rule of thumb,the U.S.economy entered a recession in the first half of 2022,having sustained two straight quarters of(modestly)declining gross domestic product(GDP).But if we were in a recession at the t

36、ime of writing,it would be a most peculiar one.For one thing,gross national incomethe income side of the national accounts ledger that is supposed to square with GDPhas been positive over this same period,suggesting flaws in how we measure economic output.And other economic metrics certainly do not

37、indicate a downturn:Jobs are still growing strongly while unemployment claims are at their lowest levels since the 1960s;Home prices and rents are at record levels and are still rising;andConsumer spendingwhich accounts for two-thirds of the economyhas been at least mildly positive every month this

38、year(through July 2022).This duality likely explains why the National Bureau of Economic Researchthe official arbiter of business cycleshas not yet called this period a recession.That is not to suggest that all is copacetic with the economy.Key barometers like the business outlook indices compiled b

39、y the Institute for Supply Management have been trending downward since mid-2021,Taking the Long View“The short-term risks are real,and Im not making light of any of them.But if you have the long view,I dont think its time to panic.”Exhibit 1-1 Firm Profitability Prospects for 20230%20%40%60%80%100%

40、202320222020012GoodexcellentAbysmalpoorPercentage of respondentsFairSource:Emerging Trends in Real Estate surveys.4Emerging Trends in Real Estate 2023Higher for LongerWith interest rates headed“higher for longer,”the risk of a deeper,full-fledged recession is rising,

41、according to a grow-ing consensus of economists.In an August 2022 survey by the National Association of Business Economics,only a quarter of economists were even“somewhat”confident that the Fed could bring down inflation to its target range without causing a recession.Worrying signs out of Europe in

42、 early autumn and expectations of soaring heating bills this coming winter add to the gloomy global economic outlook.These conditions would be problematic for property markets:slowing or falling economic growth dampens tenant demand,while higher interest rates raise the cost of developing or acquiri

43、ng properties.Both factors would cut returns and reduce values.Indeed,rising interest rates and uncertainty over future market conditions are already killing deals since sellers have not been ready to capitulate to buyers growing demands for price concessions,as we discuss in our capital markets tre

44、nd.New HorizonsStill,not all recessions are alike,and most economists,as well as Emerging Trends interviewees,expect any recession to be relatively short and shallow.Reflecting the view of several CRE leaders we interviewed,a senior executive with a global devel-opment and investment firm said,“My g

45、ut says were going to have a recession,but its going to be relatively mild compared to some of the more severe recessions weve had.I dont see anything like the 2008 economic downturn going on.”One leading CRE economist went so far as to say,“I think were going into what I would say is a healthy down

46、 cycle.Its a cleansing,Schumpeterian idea that every so often,economiesproperty markets includedneed to cleanse,and it washes out bad ideas,it washes out unrealistic unsustainable values.”That reset presents new opportunities,even as it introduces uncertainty.Says the CEO of a development company,“I

47、 think this is a moment in time.And when I look back historically,and I did not act in these moments in time,Ive always regretted it.”The 10 emerging trends that we expect for 2023 and beyond follow:1.NormalizingProperty market fundamentals are“normalizing”as some markets weaken due to diminishing p

48、andemic tailwinds and the potential for a cyclical economic downturn.Exhibit 1-2 U.S.Real Estate Returns and Economic Growth6%5%4%3%2%1%0%1%2%3%4%5%6%GDP change50%40%30%20%10%0%10%20%30%40%50%Index changeNAREIT Equity REIT IndexNCREIFGDP2023*2020092007200520032001Sources:NCREIF

49、,NAREIT,Bureau of Economic Analysis/U.S.Department of Commerce,PwC Investor Survey.*NCREIF/NAREIT and GDP projections for 2022 and 2023 are based on the PwC Investor Survey.even if they are not technically in the recession range.Declines in consumer confidence over the last year have been even sharp

50、er.All of these positive and negative factors together paint a kind of a Rorschach test,where observers can draw their own conclusions as to the strength of the economy.The End of the BeginningBut there is one issue on which our interviewees agree:“The exis-tential risk for the real estate economy r

51、ight now is that Fed action in response to persistent inflation will tip us into a recession,”says a senior partner with a leading advisory firm.But can the Federal Reserve Bank tame inflation without breaking the economy?Moderating inflation rates this summer led many to believe that the worst was

52、over and that the Fed could soon ease up its con-tractionary monetary policy.Indeed,the consensus of experts we interviewed this summer was that the Fed would cease tightening by the end of 2022 and start cutting rates again in mid-2023.That sentiment now appears optimistic.“Inflation is going to be

53、 a little stickier than people think,”said an investment banking executive we interviewed during the summer,whose views turned out to be more prescient.Sentiment started changing in late August when Fed Chairman Jerome Powell gave his annual speech to fellow central bankers affirming the Fed view th

54、at infla-tion is not nearly under control,jolting markets.Any remaining doubt about that was quashed by the official Fed commentary accompanying their September rate announcement projecting that rates would keep rising through 2023.As Winston Churchill famously cautioned after the British army won a

55、 critical WWII battle,the victory marked“not the end,not even the beginning of the end,but,possibly,the end of the beginning.”5Emerging Trends in Real Estate 2023Chapter 1:Taking the Long ViewSome property sectors may cool,including residential and industrial,while others may heat up to historical a

56、verage levels,such as hotels and retail.Returns and prices of most assets are declining as cap rates rise and transaction volumes fall from record levels,while rent gains for others are merely moderating as demand returns to a more sustainable pace.Defying just about every prediction voiced during t

57、he terrify-ing and uncertain days of the COVID-19 lockdown that began in March 2020,U.S.commercial property markets actually embarked on a remarkable run,with some of the strongest returns,rent growth,and price appreciation rates ever recorded.Not every property type,however:hotels endured their wor

58、st and most sustained downturn in memory,while offices suffered an unprecedented and significant cut in usage of space.And not every market:some of the nations strongest gateway mar-kets,like New York City and San Francisco,experienced sharp outflows of residents,businesses,and tenants of all types.

59、But overall and across much of the United States,property markets far outperformed expectations and historical norms.And now,more than two years on,property investors and managers are learning anew that whopping growth and profits eventually fall back to eartha“reversion to the mean,”to use finance

60、jargon,or simply“normalizing,”as numerous industry experts we interviewed put it.Some looming market adjustments will be cyclical due to the weakening economic conditions that most economists and real estate professionals expect,while others represent more of a return to normalcy after all the pande

61、mic-fueled market distortions.These market reversions will take several forms:prices of most assets are declining as cap rates rise and transaction volumes fall from record levels,while rent gains for others are merely moderating as demand returns to more sustainable levels.Perhaps the biggest surpr

62、ise is that these reversals of fortune are hitting favored property sectors like multifamily and indus-trial.That does not necessarily mean the market corrections will be painful.In many cases,recent losses in property value will only trim already healthy gains.But many indicators suggest that the(r

63、eally)good times may be over,at least for a while.Housing Set to CoolA finance executive with one national homebuilder told us,“Were still selling.Its just not at the pace that it was selling before the last two years,which was a pace that you dont typi-cally see.So,the markets are more normalizing.

64、”Indeed,home Exhibit 1-3 Importance of Issues for Real Estate in 2023Currency exchange ratesFederal taxesState and local taxesTariffs/trade conflictsGlobal economic growthCapital availabilityInflationJob and income growthAvailability of qualified labor Interest rates and cost of capitalHealth-and sa

65、fety-related policiesMunicipal service cutsHealth and wellness featuresRisks from extreme weatherEnvironmental/sustainability requirementsProperty taxesInfrastructure/transportationNIMBYismTenant leasing and retention costsState and local regulationsOperating costsLand costsConstruction labor availa

66、bilityConstruction material costsConstruction labor costsEconomic/financial issuesReal estate/development issuesSocial/political issues4.514.484.463.973.723.543.493.473.423.423.193.022.992.892.764.384.264.244.153.883.423.033.022.972.691Noimportance3Moderateimportance5importanceGreatThreat of terrori

67、smDiversity and inclusionHigher education costsFederal budget deficitIncome inequalityState/local government budgetsClimate changeEpidemics/pandemicsImmigration policyPolitical extremismGeopolitical conflictsHousing costs and availability4.213.513.473.473.453.283.193.173.122.942.882.87Source:Emergin

68、g Trends in Real Estate 2023 survey.6Emerging Trends in Real Estate 2023salesboth new and existinghad an extraordinary 12-year run since bottoming out in the summer of 2010 until the Fed started hiking interest rates in the spring of 2022.But its not just home sales that are slowing.Virtually all as

69、pects of the housing marketboth for-sale and rentalhave been decelerating.New home prices peaked in April 2022,while prices of existing homes likely peaked in June after appreciation started to slow with the rise in mortgage rates.Meanwhile,apartment rents have continued to push ever higher,but the

70、pace has been moderating in recent months.Construction starts also have slowed.The National Association of Home Builders housing market index has fallen for eight straight months through August 2022 to its lowest level since May 2020.This is not to say that were in a housing recessionfar from it.Hom

71、es are still selling at a healthy rate by historical levels,and home prices remain near record levels.And while multifamily vacancies are at their lowest level in four decades and rents continue to log new records every month,the rates of increase have been slowing and are expected to decelerate fur

72、ther,according to many experts we interviewed.“Maybe you dont see the 10 percentplus rent growth in multifamily markets,”says the head of one institutional investment advisory firm.“They should come back to more of a long-term historical average of 3 percent to 4 percent,and maybe offset some of the

73、 unafford-ability in the country.”Indeed,housing markets may be partly victims of their own success as record prices and rents mean fewer households can afford to buy homes or rent apartments,particularly with mort-gage interest rates and housing-related expenses like utilities rising sharplya topic

74、 we explore in“Too Much for Too Many,”our trend on housing affordability.The Warehouse PauseThe white-hot industrial market also seems set to cool after several years of unprecedented demand growth and rent gains that have pushed rents far above prior records.Growth in e-commerce is slowing and givi

75、ng back some of the market share it captured from physical retailers during the pandemic.The largest warehouse user in the United States has delayed occupying numerous completed projects,trying to sublet many,as it slows its physical growth.Other major retailers also have been cutting back their dis

76、tribution expansion plans.To be sure,the industrial sector still enjoys record-low vacancy rates,as demand for high-quality,well-located logistics facilities has been running ahead of the markets ability to supply them.And investors are not ready to abandon industrial or multifamily,both of which st

77、ill reign at the top of the heap in the Emerging Trends survey.Still,the ratings are a bit less exuberant than last year,and these high-riding sectors do not look quite as invulner-able as they had in recent years.But even recognizing that industrial demand could ease at all from its torrid growth i

78、s a changestill robust,but a bit closer to historical patterns.The head of one investment management firm says,“While we still believe in the fundamentals over the long term,theres still cycles within the business and therefore you could potentially see some oversupply in the industrial mar-ket over

79、 a short period of time.”Reversion UP to the Mean,TooWhile some sectors will be trending down in some fashion,others will be reverting up to more normal levels.Property fundamentals have been improving for the battered hotel sec-tor,especially hotels serving leisure travelers,and there seems to be a

80、 growing consensus that the beleaguered retail sector has been oversold in recent years.Says the head of advisory services for a real estate firm,“I think weve had a little bit of a reset now where if you survived to this point in retail,the future probably looks pretty good for you.”The“Sugar Rush”

81、Is OverProperty investment returns are primed for a reset.Earnings have been unusually robust during the two years since COVID-19 hit,driven by strong property fundamentals and intense investor demandas well as ultra-cheap debt and the federal governments three rounds of stimulus spending.Total retu

82、rns Exhibit 1-4 Emerging Trends Barometer 2023abysmalpoor20232020092007BuyHoldSellgoodfairexcellentSource:Emerging Trends in Real Estate surveys.Note:Based on U.S.respondents only.7Emerging Trends in Real Estate 2023Chapter 1:Taking the Long Viewfor the institutional-quality re

83、al estate in the NCREIF Property Index(NPI)soared to over 20 percent in the four quarters through mid-2022,almost three times the 20-year average.But returns will be coming down.The 43 economists and ana-lysts surveyed in October 2022 by ULIs Center for Real Estate Economics and Capital Markets expe

84、ct total returns to drop to 3.8 percent in 2023,and recover to a moderate 7 percent in 2024.That is to say,more normal returns.That outlook tracks with the collective wisdom of respondents to this years Emerging Trends survey.More than half believe that capitalization rates are heading up next year

85、and returns are coming down,primarily due to rising“interest rates and cost of capital,”which was the top economic concern voiced in our survey.After more than a decade of“lower for longer,”the Fed is finally normalizing interest rates closer to historical levels.Those rising interest rates are alre

86、ady driving up debt costs and thus the costs to acquire and develop property,reducing leveraged returns.At the same time,the federal government is done with providing stimulus,indirectly reducing tenant demand for space.Unlike in the Global Financial Crisis(GFC)and during the pandemic,“nobodys comin

87、g to the rescue,and now we got to take our medicine,and here it comes,”says the head of research for an investment management firm.Thus,the government is turning off both the monetary and fiscal spigots that had been support-ing commercial real estate and the economy overall.The head of a developmen

88、t company summarized it like this:“I feel like weve been on a little bit of a sugar high with this stimu-lus and cheap debt.Theres going to be a slowdown.Theres got to be this normalization.So,what does that mean?I think its going to be a little bouncy;its going to be a little bit turbulent.But then

89、 we bottom out,and we start back into growth.”2.Still,Weve Changed SomeThe pandemic forced structural shifts in how and where we live,work,and recreate in ways that seem destinated to endure.Online spending is receding from its pandemic peaks but is not likely to revert to pre-pandemic levels.Busine

90、ss travel is unlikely to recover to pre-COVID-19 levels for at least several years,meaning business hotels,fine dining,and conference facilities will continue to face challenges.The greatest changes may be in how and where we work.The impact on office use and leasing is still evolving,and a signific

91、ant share of the existing stock may need to be reposi-tioned to remain competitive.Even as property markets begin to“normalize”in many ways after some of the disruptions of the past few years,we wont be resum-ing our former lives in some key respects.The pandemic forced structural shifts in how and

92、where we live,work,and recreate in ways that seem destinated to endure at least at some level,even if less extreme than our behaviors during the peak of COVID-19.Many activities have already returned to pre-pandemic levels,of course,especially those involving socializing.Americans are back to attend

93、ing concerts and sporting events,and leisure travelers,at least,have returned to the nations roads and airways.Meanwhile,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,as they had be

94、en since 2015 until COVID-19 shut down dining establishments.Yet many other activitiesand how we use spaceseem unlikely to return to the old ways.The pandemic changed us.Says a director of an investment management firm,“People are looking to achieve their lifestyle choices more quickly.Theyre less f

95、ocused on their employer and more focused on their per-sonal lifestyle.And that is changing how apartments are being viewed,how single-family residential is being viewed,how office is being utilized,and where corporations are heading.”In-Store versus Online ShoppingMuch of our spending shifted onlin

96、e during the pandemic.The e-commerce share of retail sales(excluding auto-related sales)shot up from 13 percent in 2019 to a peak of 20 percent during the initial national lockdown.That drained a lot of spending from physical retailers and squeezed the nations shopping centers.The online share inevi

97、tably waned as the economy reopened and more consumers felt comfortable shopping in stores again.But dont expect online spending to drop down to pre-pandemic levels,say many experts we interviewed.While shoppers initially resorted to e-commerce due to safety concerns or simply because the stores wer

98、e not even opendid we really live through that?they still shop online today because of its other benefits,including greater convenience,selection,and price advantages.Thus,the share we spend online remains highly elevated at just under 18 percent,nearly five percentage points above the rate before C

99、OVID-19.8Emerging Trends in Real Estate 2023Where will it go from here?The fate of shopping centers and physical retailers hangs on the answer,with downstream impacts on warehouses and logistics.The retail property sector fared far better during and since the pandemic than anyone could have expected

100、,benefiting from both direct government assistance to retailers and the stimulus payments to households,who could keep spending,even if out of work.Those gains could moderate or even reverse if the online shopping share endures,however,as consumers shift some spending back from goods to nonretail se

101、rvices they avoided during the pandemic,like travel and entertainment.As one real estate investment trust(REIT)analyst notes,“Theres still very healthy growth in e-commerce,but its no longer the lofty expec-tations we used to have at the height of the pandemic.”With growth in online spending slowing

102、,physical retailers will have an opportunity to regain some lost market share,espe-cially those that can“bridge the gap between e-commerce and bricks and sticks.They survived very well in the pandemic and will probably continue to do well,”says one investment con-sultant.Other winners will be the re

103、sourceful 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.Business Travel versus Video MeetingsThe old Buggles song has it that“Video Killed the Radi

104、o Star.”And indeed,radio began to fade as television ascended in popularity.Now,in a different era,video meetings just might killor at least greatly reduceovernight business travel.According to the U.S.Travel Association(USTA),domestic business travel spending was 56 percent lower in 2021 than in 20

105、19,while leisure travel was actually up modestly.Excluding the impact of inflation on spending shows that travel trips fell even more,since the number of meetings and events dropped by almost 80 percent.A summer 2022 study conducted by Tourism Economics for USTA forecasts that U.S.business travel in

106、 2022 will get back to only 73 percent of 2019 levels and will not return to pre-pan-demic levels through at least 2026.Firms are restricting travel to save on costs,and employees are reluctant to travel anyway.Of greater importance,they have less need to travel since clients are often unwilling to

107、interact in person,and many industry conferences have either been canceled or moved online.But perhaps the core issue is that after working from home for so long,we have learned to conduct business remotely,facilitated by improved meeting technology.Business travel will continue to recover over time

108、,but few expect levels to attain prior levels soon.The USTA study shows business travel flattening in 2023 short of pre-COVID-19 levels.The greatest real estate impacts will be on business hotels,fine dining,and conference facilities.But office demand also could suffer as firms have less need to lea

109、se space to accommodate client visits.Work from Home versus Return to the OfficeNo dynamic touches more property sectors and markets than how many of us will finally relocate from our home office back to the company workplace and how often.Two-plus years after the onset of COVID-19,most of us are st

110、ill not back in the office nearly as often as in the“before times.”Various sources suggest that less than half of office workers actually come into an office on a given day,at least in major markets.That level may finally increase meaningfully this fall,as some leading tech firms and investment bank

111、s issued ultimatums for their employees to return to the office more often after Labor Day.As this publication goes to press in late September 2022,it is too soon to know whether this time will prove more successful than similar prior deadlines that passed with little apparent impact.But will worker

112、s return?As the senior leader of a development company said,“Everyones still in a fact-finding mode.”The contours of the decision are by now familiar:employer demands for control and building culture,the need for mentoring and col-laboration,and workers“fear of missing out”will translate into more i

113、n-office work over time.But those factors will be weighed against the potential to save on occupancy costs and especially worker demands for more locational flexibility.As we continue to hear,“Theres just been a shift in consumer behavior.Most people dont want to commute into the office five days a

114、week,”in the words of one senior investment adviser.For now,tight labor markets ensure that employees have the upper hand in these negotiations and will resist employer desires to have workers return to the office.But that could change if unemployment rises in a downturn.Says the head of real estate

115、 at one investment bank,“I dont think well know the outcome of office until were through a recession and the power dynamics between employee and employer change.But we do know theres definitely going to be less office demand.”One guess,which seems to reflect the collective wisdom of experts we inter

116、viewed,is that“probably somewhere between 10 and 20 percent of the stock needs to be removed or repur-posed,leaving the 80 percent that really does a better job of delivering what tenants want,”according to the head of research 9Emerging Trends in Real Estate 2023Chapter 1:Taking the Long Viewat one

117、 asset management firm.But there is still considerable difference of opinion:a“jump balleverybodys just guessing,”says one investor.Whatever the ultimate figure,there is little doubt that a meaningful portion of todays office stock will be rendered redundant and available to be redevelopeda topic we

118、 discuss in the“Finding a Higher Purpose”trend.Also uncertain is how to design the space to best facilitate the kinds of collaborative work expected to dominate office work in the future,which likely will vary across firms and industries and take years to define.Another critical challenge is accommo

119、dat-ing worker preferences for individual workspaces if most people come into the office on the same three days to be with their col-leagues.Flex space might be the answer for many companies as they try to figure out their space needs.So far,the impacts on office markets have been relatively muted d

120、uring this prolonged discovery period.Firms have held onto their offices either as a precaution in case they need the space in the future or because they could not break their lease.Thus,the level of physical office occupancy(i.e.,the share of work-ers actually coming into the office)is considerably

121、 less than standard economic occupancy metrics(the percentage of office space that is leased)as firms figure out what to do.Tenants cannot afford to keep that empty space indefinitely,however,so office landlords should not be lulled into compla-cency by the relatively benign vacancy levels.More firm

122、s are downsizing or not renewing their expiring leases,so vacancy rates are still slowly rising,in contrast to every other major property sector.Plus,tenants are dumping unused offices by trying to sublet the space until their leases expire.Brokers report that a record level of office space is avail

123、able for sublease,and more is hitting the market every quarter.Much of this space will eventually turn into outright vacancies as leases turn,unless firms eventually reverse course.But no one we interviewed expects a mass departure from office buildings.Even under the most pessimistic scenarios,most

124、 knowledge work will occur in company offices,which,after all,were designed to facilitate this high-value work.But it will take more time for firms to figure out how much space they will need,how it should be configured,and where it should be located.As summarized by one economist,“Mixing Greek myth

125、ology and biblical references,its probably really more of an Odyssey as opposed to an Exodus.”The search for a post-pandemic“new normal”will continue.3.Capital Moving to the Sidelinesor to Other AssetsAfter a robust first half of 2022,real estate property transac-tions began declining,primarily beca

126、use buyers and sellers cannot agree on pricing due to heightened market uncer-tainty.Rising debt costs and restrictive underwriting standards are also limiting transaction volumes.Exhibit 1-5 Anticipated Changes in Commercial Mortgage Rates,Inflation,Cap Rates,and Expected Returns,Next Five Years0%2

127、0%40%60%80%100%Investor return expectationsReal estate cap ratesCommercial mortgage ratesInflationNext 5 years2023Next 5 years2023Next 5 years2023Next 5 years2023IncreaseIncrease substantiallyDecreaseRemain stable at current levelsSource:Emerging Trends in Real Estate 2023 survey.Note:Based on U.S.r

128、espondents only.10Emerging Trends in Real Estate 2023Says the regional leader of one global firm,“Cap rates have gapped out as interest rates went up.And suddenly,things didnt pencil,and that generated broken deals.The cost of financing for real estate and everything else went up dramatically.And so

129、 everything has to be repriced,everything has to be reset.”Also limiting investor demand:debt is getting more difficult to obtain,and the Emerging Trends survey expects underwriting standards to get even more rigorous.As the partner in one lead-ing advisory firm explains,“This is one of those cash i

130、s king situations where borrowing costs are higher,and if youre an all-cash buyer,those probably represent a disproportionate share of the people in the market today.”The denominator effect may force some institutional inves-tors to reduce their CRE exposure,but any negative impact could be limited

131、by the growing market share held by nontraded REITs,high-net-worth investors,and other non-institutional investors.One of our key themes last year was“Everyone Wants In,”reflecting the deep and wide investor demand for just about every type of real estate,except central business district(CBD)office

132、and regional malls.Sales volumes jumped to over$800 billion in 2021,according to MSCI Real Assetsalmost double the depressed total in the first pandemic year of 2020 and nearly one-third more than the prior$600 billion record reached in 2019.The surge continued into 2022,with sales volumes in the fi

133、rst half of the year up 38 percent over the same period last year,as even the sharp rise in interest rates did little to dampen transaction volumes.But these recent volumes do not tell the whole storyand the story they do tell may be misleading as to where property markets seem to be heading.Discuss

134、ions with numerous participants from all corners of the industry confirm that many investors have moved to the sidelinesor to other types of assets like equities and bonds.Indeed,the recent surge may well reflect a last gasp to get deals done before the expected increase in interest rates.Fewer Inve

135、storsFewer investors and lenders will be providing capital for assets,according to this years Emerging Trends survey:expectations of availability declined for every one of the 13 equity and debt capital sources.Over the past decade,CRE markets benefited from a substantial capital inflow as alternati

136、ve investment classes have gained wider acceptance and real estate offered compel-ling risk-adjusted returns.Now,some of those inflows look to reverse.Investor interest is still healthy,but not what it was.“Instead of seven or 10 competing offers for sale,theres now two or three,which I think thats

137、normal,”says the head of an investment firm.“Thats normalizing,too.”Several forces look to restrict investor demand,starting with the lower expected returns discussed in our“Normalizing”trend.Rising interest rates are making acquisition and construc-tion debt more expensive,just when operating incom

138、es seem destined to slide as the economy weakens in the forecasted downturn.Indeed,the prospect of lower income and higher costs is breaking deals,as buyers either seek price breaks or pull out altogether.Exhibit 1-6 Availability of Capital for Real Estate,2023 versus 2022Public-equity REITsInstitut

139、ional investors/pension fundsPrivate local investorsPrivate REITsForeign investorsPrivate-equity/opportunity/hedge fundsSecuritized lenders/CMBSCommercial banksMortgage REITsInsurance companiesGovernment-sponsoredenterprisesDebt fundsNonbank financialinstitutionsLending source3.183.093.002.982.892.7

140、33.743.543.593.663.673.403.052.992.972.832.722.582.563.443.263.393.443.423.633.62220231Largedecline243Staythe same5LargeincreaseEquity sourceSource:Emerging Trends in Real Estate surveys.Note:Based on U.S.respondents only.11Emerging Trends in Real Estate 2023Chapter 1:Taking the Long View

141、Meanwhile,the same interest rate increases that reduce lever-aged returns and thus demand for real estate also make bonds and other interest-bearing investments more compelling.As the head of real estate banking at one investment bank explains,“Rising bond yields are going to mean that real estate a

142、nd other alternatives are all going to be facing less availability of capital and some outflows.”And while interest rates are increasing,equity and bond prices have been falling,triggering the“denominator effect”for some institutional investors with asset allocations that must remain in balance.The

143、denominator effect can be magnified because CRE values in a portfolio are generally appraisal-based,which tend to be backward-looking.However,the impact on CRE portfolios may not be severe this time.Many institutional investors have been under-allocated in CRE,so they will not need to rebalance by s

144、elling real estate assets.Furthermore,a rising share of CRE investors is not gov-erned by fixed asset allocations,including public REITs,private investment firms,and high-net-worth individuals,and especially nontraded REITs,which have grown to be among the leading investors in CRE,with an asset valu

145、e of almost$300 billion in 2021.In sum,capital availability should decline in the near term,though the denominator effect may not force sales as much as in typical downturns.Uncertainty=HesitancyPerhaps the biggest headwind to getting deals done now is uncertainty over where prices will settle.Refle

146、cting the views of many experts we interviewed,one senior investment banker says,“Transactions are being done at cap rates that are anywhere from 25 to 75 basis points wider than they werebut there is not any conviction that these are the right levels.”That translates into a 5 to 15 percent drop in

147、values so far,with more to come.But there are too few assets trading now to know for sure.Buyers are concerned about overpaying.Says one banker:“Now is not the time to be a heromeaning,its not the time to go out and be aggressive on buying something.Its not the time to be aggressive on borrowing.”On

148、 the other hand,sellers dont want to sell their assets short and then see them retraded at higher prices once the markets improve and few suffer from the financial distress that forces them to.It all translates into fewer deals.One senior adviser to institutional investors said,“Its pen-cils down in

149、 investment committee.We cant get an acquisition or disposition approved in investment committee at this time.”The fundamental issue for many investors is how long the Fed will keep raising rates.Many people we consulted in the summer believed that the Fed will finish hiking by the end of 2022 and c

150、ould start lowering again by mid-2023.However,Chairman Powells comments at the end of August led more observers to believe that relief will not come until at least 2024 and seemed to precipitate a sharp market selloff.But everyone agrees that deal volumes will not return until market players better

151、understand the Feds playbookwhich,in turn,hinges on when inflation can be tamed.As the U.S.head of real estate at one investment bank explained,“Thats going to create more clarity,and then some of the volatility comes down,and thats the opportunity to start buying.”Deal flow will also require invest

152、ors to recognize that pricing expectations have changed.Says one portfolio manager who wants to put money out now,“I just dont know that sellers have capitulated enough to recognize the new environment.”Exhibit 1-7 Debt Underwriting Standards Forecast for the United StatesMore rigorousRemain the sam

153、eLess rigorous4.1%24.8%71.1%20.3 61.1 18.63.9 22.3 73.813.1 52.4 34.524.9 45.0 30.116.8 47.0 36.28.4 44.2 47.435.4 51.7 12.92000222023Source:Emerging Trends in Real Estate surveys.Note:Based on U.S.respondents only.Exhibit 1-8 Equity Underwriting Standards Forecast for the Unit

154、ed States2000222023More rigorousRemain the sameLess rigorous4.4%28.8%66.8%28.0 53.7 18.35.0 27.9 67.112.9 55.5 31.621.1 48.7 30.217.1 51.4 31.511.5 54.2 34.334.0 52.4 13.6Source:Emerging Trends in Real Estate surveys.Note:Based on U.S.respondents only.12Emerging Trends in Real

155、Estate 2023At the beginning of COVID-19,several firms set up opportunistic funds anticipating all the distress that ultimately never came.Most of those funds eventually just went away or changed their focus.Investors waiting for distressed deals in the coming years may be similarly disappointed.The

156、research head of one investment management firm says,“A lot of bids have gone away,highly leveraged bids have gone away,but theres still a lot of depth to the capital markets.A lot of the nontraded REITs have plenty of money.Theres still high net worth.The strength of the U.S.dollar,while its going

157、up,also confirms that foreigners like to own U.S.dollar assets.So,theres plenty of liquidity.”A pension fund portfolio manager adds,“We have pulled back on some things.Were more selective,and things have to be more compelling.You have to take a closer look,resharpen your pencils.”But deals will get

158、done.Concludes one adviser,“If deals underwrite and make sense,there is capital that is both eager and available.”4.Too Much for Too ManyHousing affordability has fallen to its lowest level in over 30 years.Prices and rents have soared relative to incomes.Spiraling mortgage rates have pushed the hom

159、eownership bar further out of reach for a growing share of households.The chronic undersupply of housing is the result of govern-ment policies that limit new supply or increase construction costs and is exacerbated by a labor shortage,as well as NIMBYism.Simply constructing more housing may be the m

160、ost obvious and effective solution,but is far from easy to achieve.Housing is too expensive.It has been that way for too longfor too many people neither for-sale nor rental housing is afford-ablebut prices and rents have soared even further out of reach over the course of the past year.And even if w

161、e experi-ence an economic downturn,as many economists expect,it is not projected to provide significant relief.It starts with record home prices.The U.S.median existing-home price jumped by over 18 percent in 2021 alonethe largest increase on record going back to the early 1950sand then tacked on a

162、further 15 percent through mid-2022.Combined with rapidly rising mortgage rates,housing afford-ability has fallen to its lowest level in over 30 years relative to incomes,according to the National Association of Realtors.Exhibit 1-9 Real Estate Capital Market Balance Forecast,2023 versus 2022Debt ca

163、pital for acquisitionsDebt capital for refinancingDebt capital for development/redevelopment202320232023OversuppliedIn balanceUndersupplied36%53%11%20225%28%67%33%57%10%20226%54%40%49%43%9%202219%54%27%Source:Emerging Trends in Real Estate surveys.Note:Based on U.S.respondents only.More a Lull Than

164、a CrashIf transaction volumes do fall,few real estate people expect a crash or liquidity crunch in property markets.Notably,there are few signs of distress.Balance sheets are generally strong,lever-age is low,and values have not fallen very far,so few assets are underwater with their debt.Moreover,r

165、eplacement financing is generally still available for those who need it,if at a higher price and with tighter underwriting.Many investors and developers are willing to look beyond the short-term turbulence to focus on longer-term opportunities,a theme we introduced in our open-ing overview.Thus,ther

166、e are few examples of motivated sellers in the market.13Emerging Trends in Real Estate 2023Chapter 1:Taking the Long ViewThough prices began to fall modestly in the summer,as we discuss in the“Normalizing”trend,prices are still near record levels nationally.The rise in mortgage rates alone has had a

167、 significant impact.John Burns Real Estate Consulting calculated that the number of U.S.households that could afford a$400,000 mortgageabout the mortgage amount required to purchase the median-priced home with a 5 percent downpaymentdropped by 16.5 million due to rising interest rates,just in the fi

168、rst half of 2022.That hurts.But the fundamental issue is the overall chronic undersupply of housing,especially at affordable price points.The challenges are hardly new.Restrictive zoning and build-ing codes block or limit new supply,while NIMBYism delays and curbs approvals of even as-of-right proje

169、cts.Affordable housing developers complain that increasingly complex deals now require more underwriting from more capital sources.One developer says,“The average deal for us used to take 90 days to close,and now its over six months.”Some experts we interviewed believe that the rise of single-family

170、 rentals(SFRs)also contributes to declining affordability of for-sale housing.Proponents argue that SFRs extend the opportunity to live in a single-family house to those who cannot afford to buy or just dont want to,while generally expanding the supply of rental housing.But critics point out that“in

171、stitutional capital is driving up prices in the resale market,”in the words of one housing adviser,by outbidding owner/occupant homebuy-ers for existing homes.One reason:existing tax laws are stacked against the individual homebuyer.Explains one academic,“Investors are allowed to not only deduct eve

172、rything,but also 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

173、with before the pandemic.Another supply constraint is homebuilders cautious construc-tion pacing,a vestige of the last recession.Explains the director of an investment institute who developed housing earlier in his career,“A lot of the homebuilders,when the Great Recession happened,were stuck with i

174、nventory,said,Were not doing that again.Were going to build 10 new units,and as they sell,well start the next one,etc.”And then labor shortages are compounding the problems.“The construction sector as a whole hasnt returned to the peak we saw prior to the Great Recession.We saw a lot of that labor l

175、eave the sector for something maybe perceived more stable,”says the economist for a housing advisory firm.All these factors are conspiring to limit housing construction far below population growth.In fact,the number of single-family housing starts in the last decade(20102019)relative to house-hold f

176、ormations was the lowest since the government began tracking these trends and half as much or less than in preced-ing decades,despite the consistent increase in deliveries since bottoming in 2010.And now both permits and housing starts have been trending down again in 2022.Plunging homebuilder Exhib

177、it 1-10 Median Price of Existing Single-Family Homes,Nominal versus Real Prices,19542022Real priceNominal price2022200062002086415%10%5%0%5%10%15%20%Source:DQYDJ.com based on data from the National Association of Realtors,Robert Shiller,and the

178、Federal Housing Finance Agency;compiled by Nelson Economics.14Emerging Trends in Real Estate 2023confidence suggests that that decline will likely continue until the interest rate environment turns more favorable.And the homes that do get built are expensive,particularly since the pandemic.Construct

179、ion costs shot up due to supply chain disruptions and are still worrisome.As one housing industry adviser notes,“Theres a stress index about global supply chains,and those stress indices are all indicating that theyre moderating,but theyre still at very high levels.”Finally,high permitting fees and

180、utility charges and large minimum lot sizes push developers to build more expensive homes.Renters Priced Out of the Homebuying MarketWith a growing share of households priced out of the for-sale market,demand for rental units is far outstripping new supply.Though population growth slowed sharply dur

181、ing the pandemic,demand is also rising from the many young adults eager to start their own households after moving back in with their parents during COVID-19.Further boosting demand is the increasing number of younger adults choosing to live alone,according to a report from economists at the Fed,per

182、haps a reaction to lockdown claustrophobia.The multifamily sector has responded with an unprecedented increase in new supply.“Weve built more multifamily housing units over the last 10 years than we had in any other time since 1980,”notes an adviser to institutional investors.But it is still far les

183、s than needed.Vacancies have fallen to their lowest levels ever while rents are rising faster than evereven faster than home prices.And though not a formal part of the affordability calculations,other housing-related costs like utilities and main-tenance are also rising faster than incomes,further c

184、onstraining the ability of households to afford basic shelter.Moving to More AffordableRecent slowdowns in rent growth and home price appreciation,noted in our“Normalizing”trend,have done little to increase affordability.So how to address this?Millions of people have taken matters into their own han

185、ds.As an executive with one developer notes,“A lot of people are moving to markets where Exhibit 1-11 Average Cost of Regulation as a Percentage of Total Multifamily Development CostPure cost of delay(if regulation imposed no other cost)Cost of land dedicated to the government or left unbuiltComplyi

186、ng with OSHA/other labor regulationsAffordability mandates(e.g.,inclusive zoning)Cost of applying for zoning approvalFees charged when building construction is authorizedDevelopment requirements(layout,materials,etc.)beyond the ordinaryCosts when site work begins(fees required,studies,etc.)Changes t

187、o building codes over the past 10 years0%5%10%15%20%25%30%35%40%45%11.1%8.5%5.4%4.4%3.2%2.7%2.6%2.4%0.5%Total:40.6%Sources:National Association of Home Builders;National Multifamily Housing Council.15Emerging Trends in Real Estate 2023Chapter 1:Taking the Long Viewthey can go buy a house and its a l

188、ittle more affordable.”That solved the issue for many early movers,but prices and rents have been rising much faster in many of these“Zoom towns,”reducing their affordability,a topic we take up in our trend“Rewardsand Growing Painsin the Sun Belt.”So far,migra-tion from the highest-priced markets ha

189、s not been enough to actually reduce housing costs in those markets,though costs generally are rising more slowly there.Demographics and the slowing economy could also help ease the housing imbalance.The nations population is growing at its slowest pace ever,thanks to both low birth and immigration

190、rates.And fewer buyers are on the hunt for homes now due to affordability and concerns about possible job losses in a recession.“The good news is that it is an opportunity for home-builders and land developers to do a little catch-up.Theyve been running behind for two years,and they may actually wel

191、come a little respite to finish the homes that they have sold,”thinks a senior adviser to many homebuilders.But these favorable trends alone will not be nearly enough to solve the affordability quandary.What else would help?As we outlined in previous editions of Emerging Trendswhen hous-ing was less

192、 expensive than it is nowthere are no easy fixes,but several obvious policy options would help:notably,lowering the many obstacles to housing construction,decreasing rising regulatory costs(stemming from fees and changes to building codes),and expediting approvals.Technology can play a bigger role i

193、n actually delivering homes by helping bring 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.The

194、se methods can dramatically reduce the need for labor and shrink production times at more affordable costs.Promising innovations are also arising from the nascent single-fam-ily build-to-rent sector,which is learning how to scale construction and design to reduce costs and development time,as explai

195、ned in our single-family sector overview found in chapter 2.Government could also expand affordable housing produc-tion.Unfortunately,Congress dropped the affordable housing components of the proposed Build Back Better Act from what became the Bipartisan Infrastructure Law,meaning that no additional

196、 federal help is on the way.But many state and local governments are stepping into the breach,as we discuss in our final trend on regulation.In the end,perhaps the most effective solution is the most obvi-ous:we must construct more housing that is affordable to more people.As the former homebuilder

197、we quoted earlier puts it,what is needed is“a new way of getting housing out there and get it built more affordably.”Exhibit 1-12 U.S.Housing Starts per 1,000 Households,19612022Multifamily average=4.5Single-family average=12Multifamily starts(5+units)Single-family starts202011

198、200920072005200320095937650152025Sources:U.S.Census Bureau and U.S.Department of Housing and Urban Development;compiled by Nelson Economics.Note:2022 figures are through July.16Emerging Trends in Real Estate 20235.Give Me Q

199、uality,Give Me NicheInvestment demand for commercial real estate assets is still healthy,if more tentative,as discussed in“Capital Moving to the Sidelinesor to Other Assets.”But real estate capital markets are also becoming more bifurcated between the favored and the scorned as investors,lenders,and

200、 developers turn more selective than they have been in recent years.What assets will find loveand capitalin the coming years?Investors and developers seem to be preferring three distinct types of opportunities:The security of major product types with the strongest demand fundamentals,notably industr

201、ial and multifamily housing,which essentially tie for top investment ratings in this years Emerging Trends survey;Best-quality assets in sectors undergoing significant demand disruption,especially retail and office;andNarrowly targeted subsectors(like student housing)and newer“niche”asset types(like

202、 single-family rentals).There is much less appetite now for riskier opportunistic invest-ments.Our survey also confirms continuing strong interest in Sun Belt markets,though the rankings are moderately tighter than last year,as we show in our markets review in chapter 3.Hot or Not?The dominant capit

203、al market trend is the increasing divergence of demand among different property types and then within property types,particularly office.As investors get more selective,they increasingly choose safer sectors with the most compelling market fundamentals.Tenant demand continues to outpace the markets

204、capacity to add new supply in both the residential and industrial sectors,which therefore draw the greatest interest from capital markets.Retail and office,by contrast,find much less support.We repeatedly heard some version of that story in interviews with industry leaders.But that big picture does

205、not fully capture the range of market currents.Tenant and investor demand for apartments and warehouses is deep at all price points and almost every market,but the story is more nuanced for office and retail.Demand for well-located,top-quality office and retail space is as strong as ever,but tenants

206、,and thus investors,are losing interest in lower-quality buildings and shopping centers.Bifurcation and the Flight to QualityThe bifurcated demand that started a decade ago in the retail sector and expanded over time has now spread to the hotel and office sectors.However,the dynamics are different f

207、or each sector.The retail bifurcation was driven primarily by years of overbuilding combined with the sectors failure to update or demolish obsolete centers and then compounded by the grow-ing competitive pressures from e-commerce.The tenant market could not support all the existing centers,causing

208、a divide between the best-located centers with the best retailers and everything else.Investors have followed suit.A similar divergence is taking place in the hotel sector but through a very different dynamic.Here,the divide is being driven by the contrast between the broad post-COVID-19 recov-ery i

209、n the leisure market and the much slower and incomplete business market recovery.Thus,resorts and destination hotels are commanding record revenue while many convention and business hotels languish.And then there is office,where tenants are increasingly choos-ing newer,more modern buildings and aban

210、doning everything else,especially pre-1990 buildings.Unfortunately,for current owners,the office sector experienced its greatest construction boom in the 1980s.Now,many of those assets are becoming functionally obsolete,unwanted by tenants or investors.Says a senior leader of a global development fi

211、rm,“If its old class B office,Id be worried because thats the kind of space that companies will ultimately shed to move into new space.”But not just any new space.The top tier of spacewhich industry experts say accounts for only about 20 percent of all office stockis distinguished by several key mod

212、ern design features.These include the following:Exhibit 1-13 Share of All CRE Transactions,by Major Property Sector,1H 22 and Change from 1H 21SectorShare of1H 22 salesChange from 1H 21Apartments43.7%+3.6%Hotel6.3%2.4%Industrial21.1%0.8%Office16.3%3.3%Retail12.6%+2.8%Source:MSCI Real Assets;compiled

213、 by Nelson Economics.17Emerging Trends in Real Estate 2023Chapter 1:Taking the Long ViewHigh ceilings and floor-to-ceiling window lines that allow for abundant natural light;Sustainable design that minimizes or even zeros out the buildings carbon footprint;andPremium health and safety features,such

214、as efficient HVAC systems with rapid air-refresh rates.The U.S.head of real estate banking for another major invest-ment firm sees office building quality more as a competitive advantage in the war for talent.“Major companies,especially their headquarters space,think of that as synonymous with their

215、 brand.And so if they want to attract talent,they want to be at a modern,sustainable building.”“Those rents continue to hold up really well,”says the head of a real estate investment bank.“And everything else continues to be really,really tough.So its going to be trophy and trauma in the business.”I

216、t is almost hard to overstate how much that older office product has fallen out of favor.A global portfolio man-ager of an investment management firm explains that“office,especially value-add office,has kind of become toxic.The debt funds were the primary lender to value-add,especially opportu-nisti

217、c office.Thats completely dried up.”As with failing retail centers,many of these older office assets will need to be either upgraded or converted,as discussed in our next trend on repurposing obsolete buildings.The biggest challenge is the enormous cost of renovating a 40-year-old building to the he

218、alth and safety and sustainability features and modern design standards offered by the top-tier properties.Mainstreaming of Niche Property TypesIn last years Emerging Trends,we documented the growing interest by institutional investors in nontraditional CRE product types.This years survey and interv

219、iews reveal an even stronger interest in niche products.Niche property types occupy five of the top-rated six slots for“investment prospects,”as shown in chapter 2,including the two top subsectors,workforce housing(market-rate housing affordable to middle-income households)and data centers.This shif

220、t partly reflects investor expectations that cyclical trends will reduce returns in 2022 and 2023,intensifying the eternal search for yield.That search will favor some of these smaller product types that generally command higher cap rates and returns relative to the traditional product types.Why?Exi

221、ts are less certain because these assets tend to be more thinly traded.Moreover,there is less reliable operating data,and these prod-ucts often require more specialized management,raising the risks for investors lacking experience in these sectors.The significance of these factors is likely to reced

222、e as more investors enter these sectors.That potential looks to get a boost from an unlikely,if wonky,source:NCRIEFs Property Index(NPI).Pension funds,investment advisers,and other institu-tional players often construct their portfolios to match the NPI mix,a phenomenon known as“benchmark hugging.”T

223、he NPI includes only the five major product typesapartments,hotels,industrial,office,and retailand a select few subtypes,like flex space and research and development(R&D)under industrial.In a revolutionary move for the often-plodding institutional investor world,NCREIF plans to promote a new,expande

224、d“NPI Plus”with all product subtypes as its headline benchmark.This subtle Exhibit 1-14 Net Office Absorption since COVID-19 Onset(April 2020June 2022)by Building Age020406080100Net absorption(millions of square feet)Pre-19601960s1970s1980s1990s2000s201020142015present75,61628,007,66823,2

225、40,35377,454,00624,469,54012,505,69380,788,61986,794,297 Source:JLL Research.2022 Jones Lang LaSalle IP Inc.All rights reserved.18Emerging Trends in Real Estate 2023change will effectively give investors more latitude to pursue less traditional asset types.This change comes at a propitious time in t

226、he investment cycle as investors seek assets better positioned to outperform during more volatile market conditions.These include some of the more established subtypes like medical office,self-storage,and student and senior housing with strong demographic tailwinds supporting rising demand.There als

227、o are newer subtypes with growing interest,like cold storage warehouse,life-sciences office,and single-family rentals,generally benefiting from favor-able demand shifts.And still others dont fit neatly into traditional CRE categories,like media(e.g.,movie studios,sound stages,and recording studios),

228、cell towers,and data centers,but all benefit from solid demand.Some investors introduce niche products to add diversification to their portfolios.Says a senior adviser to institutional investors,“I like,within certain traditional segments,playing off the niche a little bit.Medical office is an inter

229、esting offset to traditional office exposure in a portfolio.And you have the same thing happening with other major property types like industrial with cold storage and data centers.”In summary,real estate investors are viewing calendar year 2022 as a transitional year requiring changes in near-term

230、investment tactics.Some capital has moved to the sidelines until there is greater clarity on pricing and future market conditions.But investors still actively seeking opportunities are generally seeking the safety of top-quality assets or sectors most likely to ride out expected headwinds due to str

231、ong demographic sup-port or other favorable demand fundamentals.6.Finding a Higher PurposeLong-term demographic trends and more recent structural demand shifts have rendered countless existing buildings and properties either redundant or obsolete.Many of these buildings may ultimately need to be rep

232、urposed or upgraded to meet new market requirements.Key repositioning targets are concentrated among retail,office,and older industrial structures and sites.Promising opportunities include residential units and newer or better-located industrial stock,as well opportunities to“retrofit for the future

233、.”These conversions are often much easier to envision than to execute,however,often requiring specialized expertise and substantial investment to execute.The value loss that owners may need to recognize in order to justify the transformative investment could be the greatest barrier to project feasib

234、ility.We have too much retail space and too many office buildings,and not enough residential units or modern industrial space.That is the inescapable conclusion from our many discussions with leaders across the industry,as summarized in the preced-ing pages.There also is not enough developable land

235、on which to build all the housing and warehouses where needed.Hmmm,maybe theres something to that.The Importance of Older BuildingsIn her classic 1961 urban planning treatise,The Death and Life of Great American Cities,Jane Jacobs elucidates the critical ingredients for a diverse,vibrant city.Among

236、them is one rule that may seem puzzling at first:“The district must mingle build-ings that vary in age and condition,including a good proportion of old ones.”Why the need for old buildings?Why not all new?“If a city area has only new buildings,the enterprises that can exist there are automatically l

237、imited to those that can support the high costs of new construction.”How boring and monotonous that would be.Jacobs points to all the small local businesses that occupy these older structures that give the neighborhood its diversity and vitality.Although Jacobs doesnt say it precisely,there is anoth

238、er crucial observation regarding the importance of older buildings:so many of them find new life with uses different from their original function.Walk around the bustling old port districts of Montreal or Boston or Portland,Maine,and you will find hundreds of for-mer warehouses that have been repurp

239、osed into upscale hotels,cool offices,hip restaurants,and distinctive retail spaces.Conversions are hardly limited to old warehouse districts.Every vibrant downtown is filled with buildings of varying types and vintages that have been converted into new uses.Often the conversions go“upstream,”as low

240、er-value land uses like ware-houses convert into higher-value uses like office or retail.But the direction is often reversed,with old offices converting into artist space or storage.Lemonade from LemonsDemographic trends and structural demand shifts magnified by the pandemic have rendered countless

241、existing buildings either redundant(no tenant demand for the current use or at the location)or obsolete(unable to lease in its current condition and/or configuration).But manythough not allof these can be either repurposed or upgraded to meet new market standards.The many opportunities include the f

242、ollowing:19Emerging Trends in Real Estate 2023Chapter 1:Taking the Long ViewConverting older offices to residential uses,or upgrading them into modern offices,where feasible and supported by the market;Repurposing excess retail space for other uses(including fulfillment,service office,and residentia

243、l)or improving with mixed use(especially residential,office,and hospitality);andScraping buildings to create development land where con-version is not feasible,or where density can be increased,to site new housing.These conversions are often much easier to envision than to execute,however.The notion

244、 of converting obsolete malls into fulfillment centers,for example,has been a point of interest by both people inside and outside the real estate industry.But the case for these conversions can be easy to exaggerate.Nearby residents dont relish sharing local roads with big-rig trucks serv-ing these

245、logistics facilities,while local governments resist losing retail sales tax revenue and jobs.And everyone laments losing what had been a community gathering place.But the greatest barrier to land use conversions is the value loss that owners must recognize in order to justify transformative investme

246、nt and make projects feasible.Malls,for example,often command the highest values per square foot of any property type and warehouses among the lowest:converting a mall into a warehouse may require an enormous value writedown.It is possible to convert malls to uses with higher values than warehouses.

247、For example,the Austin Community College converted Highland Mall into a mixed-use campus,while an e-commerce giant purchased the former Lord&Taylor flagship store in Manhattan,aiming to convert the building into offices,though those plans have since been frozen as it reevaluates its space needs.An e

248、ven more likely step for failing malls is to convert just the most problematic portions.For example,at York Galleria in York,Pennsylvania,a former Sears was converted into a casino and then a vacant Bon-Ton department store into a self-storage facility.Whats Next for Office?Perhaps the biggest chall

249、enge confronting urban landlords and city leaders is what to do with all that older office space that increasingly looks redundant,obsolete,or both.“One of the major problems we have in the office market right now is weve got a bunch of pre-1980 buildings that are function-ally obsolete,and we dont

250、know what we do with them,”says the global head of research for an investment management firm.The instinct of many owners will be to upgrade in order to attract new tenants.But that approach can be expensive,with the payoff highly uncertain.Owners of one older high-rise in Boston invested$300 millio

251、n to convert the 1 million-square-foot con-crete building into a sleek glass-lined tower.Some major leases have been signed,but significant blocks remain available.Not every older building would require such extensive improve-ments to compete for tenants,of course,but even funding tenant improvement

252、s may be too risky in this highly competi-tive market.A senior executive with one CRE investment firm believes,“Theres going to be a lot of distress.Even in a great market,if their debt is coming due,theyre going to be hard pressed to refinance that building,particularly if that building needs the c

253、apital to fit out space,get new building amenities,all the things that are required as table stakes today in leasing office space.”Says one real estate investment banking executive,“Its all going to be triggered by when major leases roll or debt matures or theres some debt extension test that comes

254、up.Some of those buildings will come back to the lenders,but others may be can-didates for conversion to other uses.”One affordable housing developer is optimistic about the poten-tial for more housing.“Anybody whos sitting in city hall with a homelessness problem,which is pretty much everybody,need

255、s to start thinking about how to take some of these office buildings and repurpose them into all flavors of residential,including some homeless shelters.”But as with the aforementioned mall conversions,that would require a tremendous value decline to make such projects feasible,among other hurdles.T

256、hat capitulation could be painful and really has yet to begin.Half of the industry people surveyed for Emerging Trends believe that central-city offices are over-priced.But at some point,owners may have no alternative to a serious writedown if office tenant demand keeps falling.Moving from Here to T

257、hereDiscussions with experienced practitioners for the upcoming ULI report,Behind the Facade:The Feasibility of Converting Commercial Real Estate to Multifamily,suggest several lessons that can increase the odds of successful conversions.First is the understanding that there is no cookie-cutter buil

258、ding to convert,particularly when converting commercial real estate to multifam-ily use.Not only is each experience different,but developers of successful conversions expect that each subsequent one will be different.Because of the unknowns when taking off a facade and walls and bringing it down to

259、the concrete,interviewees stressed the need for an experienced and nimble team that can 20Emerging Trends in Real Estate 2023adjust in real time.As one developer summed it up:“You go with the flow of what the building is telling you it wants to do or can do and then merge that with your financials.”

260、Second,two perceived stumbling blocks of office conversions to multifamilylarge floor plates and office buildings that are not fully vacantmay not be the universal impediments once thought.They have been successfully addressed enough times to suggest that there are options to pursue,at least in some

261、 cases.The former by innovative configurations,often by providing bedrooms without direct natural light,use of internal space for amenities,or creating a lightwell.The latter typically by the expected departure of a main tenant but then lease termination negotiations with the remaining tenants.Of co

262、urse,the financial viability of these solutionsand the full conversion process itselfdepends on the strength of the multifamily market in the particular location.A growing number of developers are honing the skills required to understand which buildings are most amenable to trans-formation at a feas

263、ible price point and to undertake the complexities of conversions.Conversions to residential units have become a mainstream development option,and perhaps even a specialized niche sector.And institutional and private capital are finding investment opportunities in this area.Retrofitting for the Futu

264、reThe obstacles to converting from one property type to another are varied and daunting.Many owners will rise to the challenge,but such undertakings are often not practicaleither too expen-sive or just too difficult.But the need to“retrofit for the future,”as one real estate adviser points out,provi

265、des another set of opportunities that may be more limited in scope but ultimately broader in scale.Owners and managers of real estate will need to enhance the resilience of their assets against potential climate change impacts or otherwise decarbonize their assets as increasingly demanded by tenants

266、,investors,and regulators,as we discuss in greater detail below.But whether a full-scale conversion to another land use or a more limited retrofit to higher building standards,there is a compelling sustainability reason for these projects beyond their potential financial feasibility.It has been said

267、 that“the greenest building is one that is already built.”Simply,it is far more sustain-able for the planet to reuse existing buildings than to build new ones.Reason enough to encourage landowners to consider what reuse options exist before demolishing buildings to make way for new construction.7.Re

268、wardsand Growing Painsin the Sun BeltDespite their continued popularity among residents,employ-ers,tenants,and investors,some Sun Belt markets are experiencing growing pains.“Big city”problems are coming to these markets known for their affordability and quality of life after years of continuous eco

269、nomic and population growth.These destination markets typically offer lower tax rates and lighter regulatory burdens than many gateway markets,heightening their appeal to many businesses.Conversely,some of these attractive characteristics may limit their capac-ity to accommodate continued massive po

270、pulation inflows.These markets will remain popular for both business and residential in-migration but could see the pace of both occur at more moderate levels.Everyone still likes the hot Sun Belt markets.Almost all the Emerging Trends“magnet”markets that shone most brightly in our last reportthe la

271、rge Super Sun Belt metro areas and the fastest-growing Supernovasstill shine luminously in the Exhibit 1-15 Importance of Disrupters for Real Estate in 2023DronesBlockchainAugmented/virtual reality3-D printingAutonomous vehiclesSharing/gig economyCoworking5G implementationInternet of thingsArtificia

272、l intelligence/machine learningAutomationBig dataCybersecurityConstruction technologyReal estate industry disrupters3.743.493.233.153.093.023.022.982.972.772.622.562.412.361Noimportance3Moderateimportance5importanceGreatSource:Emerging Trends in Real Estate 2023 survey.21Emerging Trends in Real Esta

273、te 2023Chapter 1:Taking the Long ViewCRE galaxy,as we detail in the“Markets to Watch”chapter.But another year of hypergrowth has brought growing pains and has slightly dimmed the outlook for some star markets,as indicated by this years survey.All this growth is bringing big-city problems to some sma

274、ller,vibrant markets that Emerging Trends once described all-inclu-sively as 18-hour cities.Such problems include those that affect the quality of life(like congestion)and standard of living(like declining housing affordability).These side effects to unfettered growth bring to mind the old joke abou

275、t the hot restaurant that is so popular that no one wants to go there anymore.The Sun Belt markets are still strong population and business magnets,but they may now draw fewer and different people as their appeal changes.Becoming a 24-Hour CityThough still ranked among the highest of all markets,som

276、e high-flying Sun Belt metros declined in ratings this year.Housing is more expensive,traffic is getting worse,longtime residents are getting frustrated,and even some newcomers are finding the proverbial grass to be not quite as green as they envisioned.In focus groups with local market experts cond

277、ucted by ULI district councils across the United States,participants from the Supernovas and some other Sun Belt markets were likelier than members from metro areas with more sluggish economies to cite issues like living costs,housing affordability,and infrastruc-ture quality as being a regional dis

278、advantage.These issues were most frequently mentioned as problems in some of the booming markets,like Austin and Nashville.Describing the growing pains in her market,a focus group par-ticipant commented,“Nashville is like a teenager.We have grown too quickly and havent decided what we want to be whe

279、n we grow up.”Like some other Sun Belt markets,this former“18-Hour City”has graduated to a full-fledged 24-hour metropolis,but the regional infrastructure has strained to keep pace.Too Much,Too SoonThe pandemic supercharged interregional migration patterns to leading Sun Belt and lifestyle metro are

280、as,as well as intrare-gional migrations from CBDs to suburbs.Some of this migration was destined to reverse eventually.Some households left their inner-city apartments for safer environs until the pandemic was better understood and brought under control.Some young adults moved back in with their par

281、ents until their jobs reopened or their old neighborhood revived.Many of these migrants have moved back to their old places.But beyond these temporary moves,the pandemic acceler-ated more permanent migration.Some workers were freed to move wherever they wanted by flexible work arrangements that beca

282、me more commonplace during the pandemic.Many left expensive coastal markets in search of more affordable“lifestyle”markets that offer what they perceive to be more favor-able amenities or superior economic opportunities.A ULI focus group participant from Salt Lake City said,“Quality of life and affo

283、rdability have been great draws to the market.Sustained high growth will test these factors long-term.”These migrations certainly caught the attention of investors and developers.Many of these lifestyle markets jumped to the top of the Emerging Trends rankings.A senior executive with one development

284、 firm said,“We are fans of certain lifestyle markets.We think they were already on a very good growth trajectory for work/life balance,and then the jobs have come in a big way.They were already doing right,and then the COVID-19 tailwinds really accelerated the growth.”However,there are signs that th

285、e pace of this migration may easeeven as developer interest and investments are still gain-ing momentumrisking oversupplied markets.While job growth and income growth in these markets far outdistance national trends,home prices and rents are growing even faster,compro-mising the affordability that h

286、elped made them draw migrants in the first place.Inflation rates in Phoenix,Atlanta,Tampa,and other popular Sun Belt metro areas are among the highest in the country,partly due to surging housing costs,which make up a significant portion of the inflation calculation.What happened?For some markets,it

287、 was just too much,too soon.Population in the markets we identified last year as either“Supernova”or“Super Sun Belt”grew by an average of over 5 percent since 2019,almost four times faster than the rest of the nation,primarily due to rapid net in-migration.For some metro areas,that was just more tha

288、n they could handle.Homebuilding has been rapid but not enough to keep up with demand.Tax Burdens versus Quality of LifeAt the same time,one appeal of these destination markets is their lower tax rates and perceived lighter regulatory burden.But more relaxed taxation and regulation come at a cost,as

289、 evidenced by the challenges of accommodating massive population inflows.Of course,every fast-growing city that successfully morphs into a major metropolis inevitably experiences growing pains along the way.A key issue confronting the current generation of hyper-growth markets is whether they will i

290、nvest in the infrastructure and regional planning needed to facilitate growth while maintain-ing the qualities that led to their appeal.22Emerging Trends in Real Estate 2023One ULI focus group participant in Austin said,“The disadvan-tages of housing affordability,lack of mobility due to inadequate

291、infrastructure,and property taxes will likely negatively impact our market in the coming years.”Similarly,a Boise representa-tive offered that“the rapid increases in cost of living that weve seen in the region have hindered some of the advantages the area had for attracting new residents and busines

292、ses.”The Impacts on Migration and Development OpportunitiesIt is too soon to know which way these sometimes-opposing winds will blow,but growth is moderating in some of these Sun Belt markets.Population growth is forecast to be slower in four of the five Supernova markets over the next five years th

293、an in the years since COVID-19 hit,and brokers already report housing price cuts and broken deals in cities like Boise,Denver,and Salt Lake City.For many participants in the CRE community,any slowdown would compound concerns about looming oversupply of both residential and commercial real estate.The

294、 head of an insti-tutional investment advisory firm says they are“paying much closer attention to supply in traditionally unconstrained markets,”especially Dallas,Atlanta,Austin,and Phoenix.“We are prob-ably relatively less attracted to the growth markets despite their fundamentals,relative to where

295、 we were last year.These were the hot markets,but were a little concerned about what it looks like going forward.”But dont count out these markets just yet.In-migration to these markets will continue,if at a slower pace going forward,and will continue to attract a disproportionate share of the inves

296、tment capital.And any“oversupply”of homes could help ease hous-ing affordability concerns.Concludes the head of research for an investment management firm,“Weve always been about growth markets because weve always believed that population and employment growth are keys to success.And they can also c

297、over up a lot of mistakes.So those markets are still a major focus.”8.Smarter,Fairer Cities through Infrastructure SpendingInfrastructure spending is back among the top trends in Emerging Trends,but this time on a more hopeful note.New federal infrastructure spending provides the opportu-nity to rep

298、lace and expand critical urban infrastructure to rebuild cities and spur new developmentand address historical inequities.After years of uncoordinated local efforts,the new national programs may provide the leadership needed to transform the built environment.The title of the final trend in the 2020

299、 edition of Emerging Trends captured the sorry record of federal leadership in funding criti-cally needed infrastructure:“Washington Fumbles;States and Cities Pick Up the Ball.”Noting that“decaying infrastructure is a national problem needing a national solution,”our report predicted that progress“w

300、ill likely be more influenced by action at the state and local levels.”At least seven“infrastructure weeks”came and went between 2017 and 2019 without any tangible movement in Washington,after which infrastructure completely fell off the agenda.In the meantime,state and local governments took the in

301、itiative with efforts destined to be more piecemeal and less coordinated than a comprehensive national program.Three years later,the federal government finally stepped up with the Bipartisan Infrastructure Law enacted in November 2021.This$1 trillion bill provides$550 billion in new spend-ing over f

302、ive years and eclipses the$305 billion infrastructure bill that President Obama signed into law at the end of 2015.This program will be supplemented by additional infrastructure programs in the Inflation Reduction Act of 2022,as discussed in the following“Climate Changes Growing Impact on Real Estat

303、e”trend on resilience.The main infrastructure bill encompasses a broad range of activities focused chiefly on transportationincluding bridges and roads,rail and transit,ports and airportsbut also provides funding for broad-band internet,power,environmental remediation,and resilience,among other prog

304、rams.The Inflation Reduction Act adds spending for combating climate change and building energy security.While every program promises to touch some part of the built envi-ronment,several stand out as having especially significant impacts for cities and the potential to advance economic and environme

305、ntal justice by investing in traditionally underserved communities.Reconnecting Communities by Capping Divisive HighwaysOf particular note is the“Reconnecting Communities Pilot,”which provides$1 billion“for projects that remove barriers to opportunity caused by legacy infrastructure.”Many highway pr

306、ojects(and urban renewal programs)of the 1950s and 1960s bulldozed through Black neighborhoods and other communities of color,dividing previously thriving places,displacing thou-sands,and destroying generational wealth.The Reconnecting Communities Pilot program will provide“dedicated funding for 23E

307、merging Trends in Real Estate 2023Chapter 1:Taking the Long Viewplanning,design,demolition,and reconstruction of street grids,parks,or other infrastructure”to reconnect these bifurcated communities.An additional$3 billion was included within the Inflation Reduction Act of 2022 furthering this initia

308、tive.A growing“cap-and-cover”movement is already underway,but work by ULI and others show that there is a lot of work to be done and injustices to reverse.The Rondo neighborhood of St.Paul,Minnesota,is one glaring example.As explained in ULIs Restorative Development:Infrastructure and Land Use Excha

309、nge forum held in February 2022,Rondo was a vibrant African American community with a thriving business district before Interstate 94 was constructed through the heart of the neighborhood.According to a leader of the reconnect effort,the community then lost 61 percent of its population and almost ha

310、lf of its homeownership between 1950 and 1980.As he con-cludes:“Thats a pretty devastating gutting of a community.”Minnesota plans to cover part of the highway and build a new 24-acre neighborhood on top of it,including parks and other cultural amenities,in addition to affordable housing and a new b

311、usi-ness corridor.St.Paul already has received a$1.4 million grant to“develop a comprehensive transportation plan for the Rondo neigh-borhood to address safety,equity,and quality of life concerns.”The Reconnecting Communities Pilot program may help this project and other similar ones move forward:Th

312、e Texas Department of Transportation is building a deck above a sunken portion of I-10 separating downtown and uptown El Paso to create,as described in the federal grant application,“amenities such as green space,public gather-ing space,and entertainment venues.”A community group called Loving the B

313、ronx supports capping the Cross-Bronx Expressway,which runs through dense neighborhoods in the South Bronx,with the goals of improving local air quality and providing new land for devel-opment projects.In Seattle,Lid-5 activists are advocating for the city govern-ment to cover and add green space ov

314、er I-5.Reconnect Austin is pushing the city of Austin to bury I-35 through the urban core of Austin and dedicate the new land as public space and developable land.Many projects of note are either in the works or being actively discussed,including those in Syracuse,New York;Richmond,Virginia;and Hous

315、ton.Expanding Broadband AccessAnother program from the Bipartisan Infrastructure Law with sig-nificant potential impact on communities and the CRE industry is the$65 billion to expand broadband access to the 30 million Americans living in areas without broadband infrastructure.Recognizing the relati

316、vely high cost of service in the United States,the program also seeks to“lower prices for internet ser-vice and help close the digital divide,so that more Americans can afford internet access.”The importance of this initiative was anticipated in ULIs 2021 report Broadband and Real Estate:Understandi

317、ng the Opportunity:“Availability of widespread,high-speed broadband networks already has a wide variety of benefits to the real estate industry,communities,and individuals.Increasing mobility opportunities can present potential value that real estate owners and managers can harness for their buildin

318、gs.Such opportuni-ties include repurposed or reduced parking facilities,denser projects,and higher rates of return.”Expanding broadband access to underserved communities is also critical to increasing opportunities for employees in more communities to work from home,as we discussed in our“Still,Weve

319、 Changed Some”trend above.Transportation InfrastructureWe noted in a prior trend that many hypergrowth markets have been unable to keep up with building critical infrastructure,particularly that which is related to transportation.The infrastruc-ture funding bill will provide almost$600 billion in tr

320、ansportation funding.More than half of that will be allocated to the highway system,the largest such investment since the Interstate Highway System began construction in the 1950s.The Institutes 2021 report Prioritizing Effective Infrastructure-Led Development:A ULI Infrastructure Framework highligh

321、ted the need to invest in public transportation:“Increasing access to jobs,economic opportunities,social interactions,and mobility is essential.Public transportation provides the regional frame-work for compact,people-centric urban development,enables significant real estate and value creation oppor

322、tunities,and mitigates climate change.”The new infrastructure funds more than$90 billion to modernize transit,improve accessibility,and continue existing transit programs.Finally,the infrastructure bill provides critical funding for building environmental resilience and expanding water availability,

323、as will be discussed in the following trend.24Emerging Trends in Real Estate 20239.Climate Changes Growing Impact on Real EstateThe CRE sector has an important role to play in mitigat-ing climate change.But with climate risks growing,the real estate industry must proactively address the impacts of c

324、limate change on assets.Climate change may alter the dynamics of where people want to live and invest.In addition to the discomfort and health risks of living in ever-hotter climates,energy costs rise with temperatures,as do the risks of power outages as more strain is placed on power grids.Extended

325、 drought condi-tions may limit new development because authorities may limit new hookups.Many investors rely on insurance rather than capital improve-ments to protect their investments,but changing investor sentiment toward climate risks may force more affirmative changes.The earth is getting hotter

326、.The latest global climate report from the National Oceanic and Atmospheric Administration(NOAA)found that July 2022“marked the 451st-consecutive month with temperatures above the 20th-century average.And the five warmest Julys on record have all occurred since 2016.”As a result,extreme weather and

327、climate events are becoming more frequent and more severe.NOAAs National Centers for Environmental Information calculates that the annual number of billion-dollar events(inflation-adjusted)in the United States has been increasing rapidly in recent decades,rising from about three per year in the 1980

328、s to over 20 in the 2020s.More disturbing is the increase in severe summer storms,excluding climate events like drought,flooding,and wildfires.The number of billion-dollar severe storms has jumped from less than one per year in the 1980s to 12 in this decadea 15-fold increase in less than 40 years a

329、nd trending further upward.Just in the recent summer of 2022,we experienced five“once-in-a-1,000-year storms”in Dallas,Death Valley,central and southern Illinois,Kentucky,and St.Louis,which recorded the most intense rainfall in the citys history.These storms demonstrate that build-ings and infrastru

330、cture are poorly equipped to withstand the changing climatemuch less what might be coming.There is still a political divide in the country about what is to blame for climate change,and what,if anything,to do about it.But there is now growing agreement about its prevalence.Fully two-thirds of America

331、ns surveyed by the Pew Research Center in 2021 believe that extreme weather events across the United States occur more often than in the past.Close to half say that it is hitting close to home as their community has recently experienced severe weather like floods and intense storms (43 percent)or lo

332、ng periods of unusually hot weather(42 percent).Last year in these pages,we highlighted the role of commercial real estate in acceleratingor potentially mitigatingclimate change,in a trend we called“Climate Risks Are on Us.”Despite recent calls by some CRE leaders that we should deemphasize ESG issu

333、es now as we grapple with growing economic threats,many in our industry are continuing to answer societys call to do even more to reduce our carbon footprint.But with climate risks climbing still further,this year we highlight climates impact on us as owners,managers,and users of real propertyand how our industry can proactively address the impacts of climate change on our assets.Hotter,More Expen