The 2014 Emerging Trends in Real Estate report says “the pace of recovery can make it difficult to spot signs of improvement until they are in full swing.”  ULI and PwC jointly produce the 35-year-old study based on a survey of 1000+ national experts for release at the fall ULI meeting.

A regional survey and area experts amplified the national data during a November 20 luncheon where ULI senior resident fellow Steve Bank noted “Six years of not building is paying off “with product types in short supply.  That conclusion was reinforced by examples from the local panel.  Ted Klink said Highwoods is constructing a new office building in Raleigh although it is only 25% preleased. The reason –nearby buildings are full, restricting expansion for existing tenants.

Buy, Sell or Hold?

According to the national study the products types that are considered:

• Top sell – Multifamily (44%)
• Top buy – Flex industrial (45%)
• Top Hold – Hospitality (49%) followed closely by retail (48%)

The local survey concurred with virtually the same percentages.  Ted Klink said Highwoods is selling non-core properties while buying infill and building to suit in Raleigh and Nashville.  Landon Wyatt said Childress Klein buys and holds but, with little industrial to buy, he also characterized them as “pre-buyers.”

Little worry about multifamily was evidenced in the national data.  Chris Branch (Faison) agreed, citing local growth in the Millennial population and the expanding audiences for multifamily.  Emerging Trends also noted that Charlotte is experiencing the nation’s second greatest five-year increase in that 20-34 demographic, now constituting over 20% of the local population.

Construction and land costs are top concerns both nationally and here at home. Local panelists cited the rising costs of concrete, petroleum and steel as well as the fact that getting and holding construction workers was increasingly competitive.

Tailwinds outweigh headwinds

While the headwinds are strong (i.e., uncertainty over government regulations / fiscal policy, lingering unemployment and concern over growing cost of debt capital), the tailwinds are stronger.  Development is being propelled by:

• good, if not great, job growth,
• solid corporate profits
• recovery in the housing market.

In fact, Blank said a key driver was that “Single family is back on track.”  The resurgence of the single family market helped propel Charlotte to its 16^th spot on the list, one slot ahead of Raleigh Durham, which dropped from 11 in the 2013 study.

ULI Charlotte data put local face on issues

In his dual role as moderator and reporter of the local survey data, Ned Curran (Bissell Companies) compared the two data sources. In general, Charlotte tracked with few differences to then national results.  Curran noted there were new categories on the list – the impact of state and national fiscal and regulatory policies. Panelists felt state policies were of greater impact here than federal.

Klink said Highwoods, primarily based in Sunbelt states, is bullish, since the region is experiencing growth, strong prospects and more money on balance sheets. He concluded that the Southeast could outperform the nation.

Wyatt was tasked with covering both industrial and retail. While he told how their first hint of troubles came in 2008 when a major national tenant insisted on a 15% rent reduction in its industrial space, he said the increase in retail sales and the fact there was no new construction until 2012 was beginning to pay off.  They are experiencing double absorption rates.

Two questions remain that should be answered soon

1) Is this uptick going to continue?
2) Will it justify new construction?

Retail follows rooftops, but retailers got ahead of themselves. They will eventually build again, but it will be 2015.  Neighborhood centers are in better shape because they often have grocery stores as fortress anchors. Wyatt sees Kroger taking over Harris Teeter as a game changer.  Publix’s entering the market is another plus.

Branch said multifamily developers were building to fill a pent up demand since few units were being built in 2009-2012.

Ages 24- 35 have always been a key multifamily market; they now want an urban core location and smaller studio or one-bedroom apartments.   Consumers between 35-40 are a newer market, driven by fact they are marrying and starting families later, and may not have a down payment for a home.   55-70 year olds are new to market and underserved (The national survey concurs); they choose apartment living thinking “why buy a condo when we can be liquid?”

>>To view the regional 2014 Real Estate Trends Report, click here.

>>To view the 2014 Emerging Trends in Real Estate report, click here.