The COVID-19 pandemic has made its mark on the real estate industry—from accelerating existing trends, like the reduction of retail footprints, to spawning new ones, such as a bigger focus on social justice and health and wellness.
A new report from the Urban Land Institute (ULI) and PwC US draws on proprietary data and insights from more than 1,600 leading real estate industry experts to highlight these evolving trends.
According to the Emerging Trends in Real Estate 2021 report, COVID-19 has made lower-density areas for both residential and commercial real estate more appealing and is accelerating suburban growth, especially in Sun Belt markets. Growth in the suburbs has been a consistent trend in the report for the past five years, but new work-from-home policies and increased family formation among millennials are furthering this shift. Home buyers will look for suburban locales with low taxes, affordable housing, job opportunities, and auto-oriented transportation. The report also predicts cost-conscious companies will gravitate toward cities that also are affordable and business-friendly with growing workforces.
“Times of great change always present significant opportunities,” said W. Ed Walter, global CEO of ULI. “In the near term, our suburbs will benefit from new growth spurred by shifting demographics and changes to living and working patterns resulting from the COVID crisis. Our cities will have the opportunity to respond by reimagining their public realm, building more resiliently, and reinventing assets, such as retail, that were already struggling before the pandemic. As an industry we have the opportunity to strengthen by truly embracing diversity and tackling the challenges faced by our communities.”
Heading the report’s list of the top 10 overall real estate prospect markets for investing is Raleigh-Durham, North Carolina, which is nicknamed the “Bay Area of the East Coast” for its tech jobs and reputation as an “education mecca.”
The top 10 list of markets is dominated by 18-hour cities, which ULI defines as second-tier cities with above-average urban population growth, an affordable cost of living, and a lower cost of doing business. These markets, according to the report, are powered by strong growth, home building outlook, affordability, and job markets.
Austin, Texas, comes in at No. 2, with a continued surge in the suburban office and home building sectors. Nashville, Tennessee; Dallas-Fort Worth; and Charlotte, North Carolina; Tampa-St. Petersburg, Florida; Salt Lake City; Washington, D.C., and the Virginia suburbs; Boston; and Long Island, New York, round out the top 10.
Other trends highlighted in the report include:
- The Economy: Most professionals, according to the report, anticipate that overall real estate prices will fall 5% to 10% as income is curtailed for several years. However, single-family homes, industrial properties, and data centers are expected to rise in value. Retail and hospitality are the sectors predicted to have the largest declines. “The long-term outlook in the real estate sector hinges on the country’s ability to reign in COVID-19,” the report notes.
- Social Justice and Racial Equity: 70% of respondents agree that the real estate industry can address and help end systemic racism. Solutions include promoting diversity, equity, and inclusion within the sector as well as ways to develop underserved communities. In addition, nearly half, 48%, of respondents disagree that real estate understands how past policies and practices have contributed to system racism.
- Affordable Housing: The pandemic has accelerated housing disparities in the U.S. with many low-income workers experiencing unemployment and potential evictions. While local and state governments are facing declines in revenues, experts agree that the federal government “has the wherewithal to provide programs and resources to the problem.” This includes the expansion of the low-income housing tax credit and Section 8 vouchers.
- Safety and Wellness: Over three-quarters of professionals, 82%, agree that health and well-being is here to stay and will become more important across all sectors of real estate. “The new focus on personal safety will lead to new services and advanced technology that provide cleaner buildings, improved HVAC infrastructure, sensors, touchless entry, and contact tracing apps.
“Now, more than ever, the real estate industry has the chance to take the lead in using planning and development skills and investment capital to reshape our work and lifestyle environments. These tools can used to address societal issues of safety, green space, and racial equity,” said Byron Carlock, PwC partner and U.S. real estate practices leader. “The gauntlet of responsibility is ours to embrace, and industry leaders see the opportunities and are responding with investment and leadership.”
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