By Michelle Landers
Each year, the Urban Land Institute and its members partner with advisers and researchers at PwC to provide an outlook on real estate investment and development trends. The “Emerging Trends in Real Estate” publication, first published in the late 1970s, is one of the most highly regarded forecast reports in the real estate industry.
As usual, there is much speculation about where Greater Boston finds itself in the real estate cycle. Most contributors to the report have a rosy outlook for the next 12 to 18 months, the key headline being “We are in a long cycle, not in boom/bust. The key to the next few years is to expand horizons, market by market, property type by property type.”
Nationally, high housing costs, economic growth, worker output and the emergence of Generation Z are among the trends driving the market. In Greater Boston, retail transformation is also impacting land use trends.
Compared to other major markets, Boston has fared extremely well in this year’s ranking of “U.S. Markets to Watch: Overall Real Estate Prospects,” joining Dallas/Fort Worth (No. 5) and Los Angeles (No. 7) as the only primary markets in the survey’s top 10. Boston was ranked 10th overall (9th for investment and 14th for development). Gateway and secondary markets rounded out the top 10: Seattle (No. 1), Austin (No. 2), Salt Lake City (No. 3), Raleigh/Durham (No. 4) Fort Lauderdale (No. 6), San Jose (No. 8) and Nashville (No. 9).
Boston topped the “Local Outlook: Northeast Region” list, with its traditional drivers of life sciences and technology. Highly educated Millennials continue to fuel the growth in Boston as well as New York City, Pittsburgh and Jersey City. Boston also benefits from the availability of capital being near an all-time high – Boston ranked No. 2 nationally on availability of debt and equity capital, behind Seattle.
Greater Boston’s higher education infrastructure, young, talented workforce, and growth in STEM industries helped the Hub remain strong overall. The housing sector had the second highest local outlook score – ranking No. 2 behind Westchester/Fairfield County. Boston does well in all categories: office (No.1), industrial and multifamily (both No. 2 behind Northern New Jersey), retail (No. 4) and hotel (tied for No. 2 behind Philadelphia). Boston received an overall score of 4.05 on a scale of 1 to 5 compared to the Northeast average of 3.49.
The trends report analyzed 13 markets from Baltimore to Portland, Maine, and identified differences throughout the Northeast, particularly in secondary New England markets.
Providence, for example, scored near the bottom of the overall real estate prospects ranking, with authors noting the challenge of attracting qualified workers and need to improve infrastructure – a theme underscored throughout aging Northeast markets. But Rhode Island’s capital city was tied for first place with Northern New Jersey in housing investment prospects. Portland, Maine, was also highlighted as a market challenged to attract qualified workers but scored near the top as a prospect for hotel investment. In general, Portland, Hartford, and Providence were all ranked as average in a five-point scale ranging from weak to strong.
The authors of “Emerging Trends in Real Estate” used an aviation analogy to describe the overall U.S. real estate market, noting the most critical times in a real estate cycle – and airplane travel – are takeoff and landing. They wrote, “This year’s discussions in [the report] focus on managing the descent safely, keeping in mind the lessons of past bumpy touchdowns.” Across the real estate industry, people are keeping their eyes on the ground, even as they look to soar to new heights
Michelle Landers is executive director of ULI Boston/New England.