The Emerging Trends in Real Estate report, which utilizes surveys from 1,600 responders across the real estate industry, has been released for 2018, and the folks at PwC and ULI have some ‘splainin’ to do. Dallas-Fort Worth, which topped the report’s “U.S. Markets to Watch” in 2016 and placed second in 2017, has fallen to the fifth spot.
But don’t feel slighted just yet, according to the report’s author.
“This report is no less bullish on Dallas today than it was a year ago—or two years ago—but we’ve got to make room for places like Fort Lauderdale and Salt Lake City,” says Mitch Roschelle, PwC partner and co-publisher of the report.
The “Markets to Watch” rankings had a few surprises for Roschelle. For one thing, Seattle took the top spot, knocking last year’s No. 1 city—Austin—to No. 2. Salt Lake City came in third, Raleigh/Durham fourth, DFW fifth, Fort Lauderdale sixth, Los Angeles seventh, San Jose eighth, Nashville ninth, and Boston 10th.
“When cities like Salt Lake City and Fort Lauderdale get in the top 10, they have to displace another city,” Roschelle says. But virtually all of these cities have a few things in common: they’re affordable to live and do business in and they have a growing population of talented young people. “Employers are attracted to these cities. That’s the common theme here, including in Dallas-Fort Worth,” Roschelle says.
In a continuing trend, the top-ranking cities are getting smaller by population. Investors are continually finding more opportunity in smaller, non-gateway cities.
In Dallas, the population growth rate for those aged 15-34 is higher than the national average, as is the five-year economic growth rate.
The 107-page report, which includes data and commentary on nationwide trends, capital markets, specific markets, and asset classes, as well as emerging Canadian trends, also notes the most significant trend for the commercial real estate industry in 2018 is a so-called long glide path to a soft landing. From the report:
Baseball announcers have taken to a phrase that captures the situation when nine innings find the score tied. They proclaim, “Free baseball!” Our Emerging Trends interviewees have tired of the “what inning are we in?” metaphor. They have the sense that no particular clock is ticking on this real estate cycle. While loathe to claim that cyclical risk is passé, few are willing to identify signs of a coming downturn. While it has been a very long time since economists have seen a “soft landing” in their projections, we may indeed be on a glide path to that result. Importantly, it seems that many in the industry are implicitly anticipating such a scenario.
Is the wish the father of the thought here? After all, soft landings are comparatively rare in economic cycles. It is arguable that only in 1994, during Alan Greenspan’s “maestro period,” have we seen a confluence of public policy and private sector performance that produced a deceleration without bumping into a recession. Yet our interviewees see accumulating evidence that the final years of this decade may replicate that pattern.
Unlike previous cycles, the report notes, the checks and balances in place to prevent the market from imploding.
“What’s interesting is that the industry is self-correcting. It has discipline,” Roschelle says. “There’s a tremendous amount of [investment] on the sidelines waiting for the right time to invest. This is not a typical boom and bust cycle.”
Though this phenomenon may seem atypical now, Roschelle says this is the new normal.
