10 Emerging Real Estate Trends Investors & Buyers Need to Know in 2016
When we assess the performance of the real estate market, 2016 is already shaping up to be a better year than last. Development and new construction rates are picking up once more and returning to healthier levels. With this forward motion, rates of home sales are also beginning to increase as homebuyers and investors grow more risk tolerant and are supported by more flexible financing options.
Among some of these growth predictions, 2016 will lay the groundwork for some specific and long-term trends that are aimed at encouraging higher home ownership rates, which have sunk since the recession. These trends will not only emphasize the need for alternative housing and financing solutions, but they will also cater greatly toward the need for developing long-term livable solutions in our mid-sized, urban-suburban cities. In addition to creative housing solutions, innovative office and industrial real estate properties are creating all around better livability for the three main generations in the marketplace.
The main underlying idea among several of the emerging real estate trends of 2016 is the concept of maximizing urban space. 33 and other Real estate leaders and investors are now challenged to think strategically about land use planning and development.
Chicago’s real estate market in particular will follow accordingly, with some specific trends paving the way for long-term shifts in how the city will tackle some of its most prominent real estate challenges.
TOP 2016 REAL ESTATE TRENDS
The emerging real estate trends of 2016 predominantly address some of the greatest obstacles faced all over North America. Many of these trends will likely continue into the latter half of the decade and beyond.
Here are some the top emerging real estate trends for 2016:
1. 18-HOUR CITIES ARE IN DEMAND
Gateway or 24-hour cities are considered to have the most action, the most perceived opportunity and the most desirable lifestyle when it comes to the urban living demographic. However, they also carry with them the highest costs of living, which is now driving away skilled labor to other secondary markets known as 18-hour cities.
Eighteen-hour cities will emerge in 2016 as increasingly desirable locations for homebuyers of all ages. Cities like Austin, San Antonio, and Kansas City, MO are benefiting from the housing shortage faced in the major cities. People are starting to take a second look at these secondary markets as they provide a greater housing supply, more affordable living costs and better job opportunities.
Plus, the lifestyle offered in these secondary markets is still urban enough for this demographic, with many of these locations being seen as vibrant and authentic. Several 18-hour cities have decidedly unique characteristics that draw in a younger generation of buyers and renters who have their eyes set on the long-term.
Recognizing the opportunity for investment in 18-hour cities, 33 guided a top investor in purchasing Lakota on Grand, (www.lakotaongrand.com) a 36 unit building in a desirable downtown neighborhood of Kansas City, MO. 33 now manages and leases the building, which boasts the luxury amenities and the convenient location young renters are looking for in their 18-hour city.
2. GENERATIONAL SHUFFLE
2016 will be a year of action-taking for all generations of homebuyers, proving it to be a good time to sell. Millennials are expected to have better opportunities to become first-time homebuyers. They will begin to seek single-family detached homes for their future family plans. Others look to make investments in multi-family real estate properties.
While millennials are looking to make their first-time investment, Gen-X homeowners have recovered financially enough at this point to look at upgrading their existing living situations. Finding more expensive or bigger and more accommodating homes will become a priority.
Finally, the baby boomer generation will look for downsized, lower-maintenance options as more of them enter their retirement years. They’re looking to make smarter financial decisions by lowering their costs of living, and that starts with housing. In a true cyclical fashion, baby boomers will free up their larger family homes for the millennials and Gen-X buyers who are ready to make their next (or first) real estate move.
3. SUBURBS REDEFINED
Within the coming years, many millennials will choose to vacate heavily urbanized centers and opt for a more suburban living situation. Single-family housing developments that are transit-oriented and close to amenities are becoming ideal for this generation. These locations are increasingly more appealing to millennials who are at or nearing the family-raising stage. They’re looking for neighborhoods that have the suburb feel without the intensity of the high-density urban centers. 15 N. Vail, a mixed use building in Arlington Heights managed, renovated and leased by 33 exemplifies the redefinition of the suburbs. Located in the town center the building offers residents the convenience of being in walking distance of bars and restaurants and the Metra station for commuters.
Keep in mind, they’re not ready to give up the big city perks altogether, however. This provides an opportunity for suburban neighborhoods to position themselves as the ideal balance for millennials, leaving plenty of opportunity for new construction. Ensuring the availability of mainstream and unique amenities will entice millennial homebuyers sitting on the fence about suburb living.
4. NEW CONSTRUCTION RECOVERS DUE TO GROWING DEMAND
Due to the increased need for both urban and suburban living, new construction of multi-family properties and single-family home communities will begin to rise. According to Dodge Data & Analytics, the single-family home new construction segment is expected to increase 20% in value, while the multi-family new construction segment is expected to increase 7% in value in 2016.
Builders will develop these properties to offer more value to buyers. Positioning new construction at more affordable price points is necessary to meet the millennials’ demand for first-time home purchases, as well as the steady demand for rental units.
5. CREATIVE, NON-TRADITIONAL HOUSING OPTIONS
While single-family and multi-family new construction is predicted to increase, so too is the development of mixed-use, and non-traditional housing. Creative housing options like micro-housing concepts have been borne out of a dire need for affordable housing. The available housing supply in the lower to mid-level range of affordability is dwindling in many markets around North America. This lack of supply is putting further pressure on housing prices and the individuals and families affected by them.
High costs of living make it increasingly difficult for millennials to get into, and sustain themselves in the housing market — especially those with one income. Therefore, new developments that can hit the market at a lower entry point are crucial to sustain a healthy percentage of home ownership — even if it means owners need to make some sacrifices.
These potential homebuyers are willing to give up space and property in order to become homeowners. Repurposing older buildings, developing co-housing solutions and other unique types of housing developments are becoming absolutely necessary to encourage individuals to make affordable real estate investments.
In 2016, we’ll start to see more options in the way we not only construct housing, but how we finance it as well. Rent-to-own options will become more popular as it encourages home ownership for those who would otherwise not have the option.
6. INCREASED INFRASTRUCTURE INVESTMENT
U.S infrastructure in the traditional sense is overall failing to meet demand and quality standards. Congestion in urban centers is making it incredibly difficult for businesses and commuters. Inefficient or outdated transit systems and low walkability scores are also hurting the economy. Additionally, the lack of rapid transit in some cities makes it difficult for businesses to attract and retain talented workers who want a more efficient urban lifestyle.
Another investment that will grow over the coming years is the allocation of funding, both privately and publicly, to green infrastructure improvements. Waste water management systems, rainwater harvesting, permeable pavements, green roofs and even green parking garages are all strategies implemented in large and mid-sized cities across the country.
These initiatives are often incentivized at a local or state level as they become increasingly important — not just for improving quality of life, but also for mitigating the relationship between our infrastructure and buildings as well as climate change.
With so much opportunity to make changes to urban transit, densify suburban living and improve walkability, the private sector has found a way to make investments in modern infrastructure developments. Financial structuring options like Real Estate Investment Trusts (REITs) and public-private partnership investment will all be necessary in the coming years to achieve these infrastructure development goals.
7. URBAN AGRICULTURE GOES MAINSTREAM
The idea of farming and growing food in urban centers has been gaining tremendous popularity over the past several years. With ventures like Brooklyn Grange in New York, the Food Field in Detroit and Chicago’s own The Plant, skeptics are beginning to see the viability of the movement.
As its core premise, urban agriculture aims to repurpose existing, underutilized spaces and give them a positive, productive purpose. From rooftops and building walls to old warehouses and empty lots, urban agriculture projects can take shape just about anywhere.
Successful urban agriculture ventures have been established in low-income areas, where lots sit vacant and properties are more affordable. The urban farm initiatives provide fresh food to those in need, establish employment opportunities, create a sense of community and can become highly productive economic investments.
The impact that urban agriculture projects will really have on the real estate market in the coming year and beyond is the demonstration that urban land can serve many purposes. Inner-city land innovation is becoming more vital to the prosperity of urban development.
8. CREATIVE OFFICE SPACES
The creative use of space not only impacts housing and the environment, but it will impact the business community as well. The entrepreneurial spirit is alive and well in cities across North America, and job numbers are up — meaning higher demand for office spaces. However, this 2016 real estate trend won’t apply necessarily to office spaces in the traditional sense.
A reinvention of offices to meet affordability, location and space requirements is taking a stronghold in real estate’s emerging trends. Co-working spaces and creative open-office design concepts set up shop in repurposed retail locations or warehouses in order to meet these requirements.
Strengthening employment and entrepreneurial growth means higher demand and the need to provide creative solutions. Businesses are looking at how to effectively take an existing space and redevelop it into a new way of working cooperatively. For commercial real estate builders and investors, those who can meet the sweet spot between innovation and price point will become leaders in the evolving office landscape.
33’s general contracting and construction management firm, Cubed Construction used creative solutions when renovating and office space for a company that was reliant on a collaborative employee culture and desired a more flexible workspace. Cubed used their expertise to balance the considerations of a functional floor planning strategies and aesthetic packages that were fluid enough to the changing and collaborative needs of their client.
9. INFLATED RENTAL PRICING
Despite many positive outlooks in home sales, new construction and commercial development, the one market feeling the squeeze will continue to be residential rentals. The combination of weak home ownership rates and the inability to meet the financial criteria of owning a home, is putting rental units in a position of high demand and low supply. This is driving rental costs upward at an unforgiving rate.
We’re now starting to see rentals becoming less economical than home ownership in many parts of the country. But for those who don’t have home ownership as an option or desire, they’re definitely paying the price. According to Realtor.com, rental costs are exceeding the standard 30% of income in more than 85% of U.S. housing markets.
If rental demand and costs continue to rise and aren’t offset by an increased supply of affordable and new construction, the market’s health could be dramatically affected in the coming years.
10. DIRECTING CAPITAL FLOW
Real estate capital flow in the United States is expected to remain steady or even increase over 2015’s strong results. Though high and rapid growth isn’t sustainable, real estate investors will still need to determine where to direct capital flow in 2016.
Some of the most common areas that real estate capital flow will be directed in 2016 will include 18-hour cities, renovation and redevelopment of office space, and developing mixed-use and alternative properties. Other areas of investing capital include establishing REITs for restaurants and retailers, as well as infrastructure investments.
HOW REAL ESTATE TRENDS WILL IMPACT CHICAGO IN 2016
The local real estate market in Chicago will see many of these real estate trends take hold in 2016. Some of the most prominent trends include the generational shuffle and multi-family property development to accommodate the strong population of millennials living and working in the city. The 2016 outlook is good for investments in infrastructure and industrial real estate properties in Chicago.
The common thread among many of these trends is how, as a collective, the real estate industry will do its best to take the little resources, space and land available, and maximize its function while keeping costs affordable. With Chicago being one of the densest cities in North America, the city will need to remain at the forefront of the repurposed-space revolution.
HOW REAL ESTATE TRENDS WILL IMPACT FINANCING IN 2016
In terms of the impact these trends are having on the finance and lending side of things, flexibility and creativity are again recurring themes. The increased need for multi-family, industrial and infrastructure projects means that lending firms will need to provide a more accommodating market by adjusting the available financing options. Financing availability needs to become more nimble to spur on this much-needed growth.
Niche lenders, small banks, as well as community and corporate lenders are providing financial solutions and products in areas that had been unsupported until now. Becoming strategic and creative will need to be at the forefront of urban real estate investment lending due to an increasing demand and lessening supply in many high-growth markets.
MAKING A REAL ESTATE INVESTMENT IN 2016
2016 presents a unique year of investment opportunity due to these emerging real estate trends. Yet, the one thing that’s certain is that professional risk analysis combined with the human touch can’t take the place of algorithmic predictions. Staying ahead of the curve will require working directly with individuals and firms with personal knowledge and experience of the market. Data-driven tools can be helpful for navigating these ever-shifting market landscapes, but nothing can replace old-fashioned human skill, intuition, and experience that is proven, honest, and long-term focused.
If you’re thinking of investing in real estate in 2016, bring on the expertise of 33’s Investment Real Estate, Residential Real Estate, Property Management or Construction Services team. 33 is a fully integrated real estate company that provides a unique one-stop-shop experience. Our high-quality line of services supports the needs that investors, homebuyers, home sellers and renters will face in 2016.