January is an ideal time to be philosophic; the weather worsens, the holidays are over, but at least the daylight is extending. The Urban Land Institute (ULI) adopted a very philosophic approach to its 2019 Emerging Trends in Real Estate Report. The report was released in mid-December 2018 with a local presentation by nearly 30 panelists in Cincinnati.
The first chapter is entitled “New Era Demands New Thinking.” The real estate situation in the United States is described as a dynamic system that is complex, transformative, and uncertain. It suggests that Venn diagrams be constructed to gain further understanding about how various factors influence each other. Unfortunately, no diagrams are provided. The real estate market has benefited from the longest economic expansion in history. The report suggests that growth will slow not to the point of correction, but rather to “plateau.” Participants should be prepared to evolve, adapt, and be surprised. Uncertainty allows for innovation and creativity. Transformation is expected due to technology, generational choices, and preferences by geography and property type.
Here are some of the concrete figures:
1. Construction cost is the top real estate issue identified. Michael Collins at J.S, Held LLC. provided several additional insights:
a. The number of construction employees today is 11% lower than the peak in 2000.
b. Material costs for construction are up 6% annually, and expected to increase by 24% over the next 5 years.
c. Project timetables often need to be extended. It takes longer to complete most projects than originally anticipated.
2. Construction technology was cited as the top real estate industry disruption, with autonomous vehicles ranking at a close second.
3. Investment and development prospects were ranked highest for industrial/distribution projects followed by housing (both multi-family and single-family).
4. Tom Powers with Cushman & Wakefield provided an introduction to a new global addressing service called What3Words.
5. Natural disasters in 2017 cost a record high $306 billion in losses in the United States. Ohio and other Midwestern states tend to be insulated from catastrophic natural disasters as evidenced by lower insurance rates. Ohio ranked #8 for lowest homeowner insurance rates in 2018.
6. Jeff Dietz and Mark Caesar at BB&T Bank noted that the prime interest rate is at 5.25%, and is expected to increase to 6% in 2019.
7. Jeff Bender at Cushman & Wakefield noted that 8 million square feet of bulk warehouse is currently under construction in the Cincinnati region, and demand will continue to be strong in 2019 for this segment.