As the year comes to a close, it’s time to reflect and look forward at what we can expect from the real estate industry in 2019. Here are four of the major trends for the next 12 months, and beyond:
1. Real Estate Bubble Unlikely to Pop in 2019
The ULI 2019 Emerging Trends in Real Estate report predicts the CRE industry will remain strong into 2019. The survey forecasts U.S. GDP growth to end this year at 3.0%. It will then slow to 2.5% in 2019 and 1.7% in 2020.
“Strong GDP and job growth in 2018 have set the stage for solid real estate demand and absorption, particularly for the rest of 2018 and 2019,” survey participant William Maher, director of Americas Research & Strategy at LaSalle Investment Management, said in a statement. Maher is a leading ULI member and was one of the participants in the survey of 45 leading economists and analysts in the US.
Cushman & Wakefield also expects higher growth rates in the CRE industry. Its latest report states: “The global commercial real estate industry is expected to grow at approximately 5% per year to more than $4 trillion in 2022, outpacing expected global gross domestic product growth.”
This figure is slightly above the IMF’s projection for GDP growth of roughly 3.8% to 3.9% from 2018 to 2020.
If we are in a real estate bubble, it doesn’t look likely to pop in 2019. “It doesn’t seem like there’s something on the horizon to forecast a sharp downturn,” PwC director of Real Estate Research Andrew Warren said during an Urban Land Institute panel in Boston. “Nobody necessarily thinks we have to end [this current period of] the economic expansion.”
2. Home Prices and Interest Rates Will Keep Rising
The Fall 2018 edition of The Housing and Mortgage Review indicates that house prices and interest rates will continue to increase. The realtor.com 2019 forecast also predicts there will be a higher proportion of houses for sale, especially at the high-end of the market.
“The big wild card in capital markets continues to be the potential impact from rising interest rates. Ninety percent of respondents do expect interest rates to increase over the next 12 months,” according to separate research from the NREI.
“The commercial real estate financing outlook for 2019 may moderate,” said David Fetter, regional senior manager for Commercial Term Lending, Chase, speaking in a statement. “However, we could see a similar range of production [in 2019 compared] to 2018 as long as interest rates maintain a narrow continuum and the market continues to absorb the new construction.”
With real estate prices and interest rates set to remain high throughout the next couple of years, buying a house remains a struggle for the majority of potential homeowners. Millennials are predicted to make up the largest proportion of buyers in 2019, accounting for 45% of mortgages.
However, the Moody’s/RCA Commercial Property Price Index expects prices to decline over the next three years to 6%, 5%, and 4%, respectively, according to the ULI 2019 report. As a result, the CRE industry could eventually shift to become a buyer’s market after years of favoring sellers.
3. Technology Will Continue to Disrupt
Technology is (and will continue to be) one of the biggest disruptors for the CRE industry, according to ULI’s 2019 Emerging Trends in Real Estate report.
The Deloitte 2019 Commercial Real Estate Industry Outlook report revealed 53% of survey respondents expect to see a significant impact from technology advancements on legacy properties in less than three years’ time, and 15 percent believe that the impact is already visible.
Furthermore, 9 in 10 respondents believe that proptechs will have a moderate to significant influence on the CRE industry in the year ahead.
Predictive analytics, business intelligence and the Internet of Things (IoT) will be the technology darlings of 2019, according to Deloitte’s report.
More than 80 percent of the survey sample believe that CRE companies should prioritize the use of predictive analytics and business intelligence. In fact, over the next 18 months, nearly two-fifths plan to increase the use of these two technologies to make their investment decisions.
“More than a quarter of the respondents believe that CRE companies should prioritize the use of IoT technology in (re)designing buildings. Respondents from China (48 percent) and Singapore (43 percent) place a greater emphasis on the use of IoT technology compared to respondents from the United States (15 percent),” according to the Deloitte report.
However, Artificial Intelligence will not have a significant impact as this technology continues to mature, according to Gartner’s strategic predictions for 2019 and beyond. The report states: “Through 2020, 80% of AI projects will remain alchemy, run by wizards whose talents will not scale in the organization.” The cloud, however, will spawn new revenue-generating products, according to Gartner.
4. New Business Models Will Prevail
The Deloitte 2019 Commercial Real Estate Industry Outlook report has the subtitle “agility is the key to winning in the digital age.”
The report “clearly indicates those real estate companies [that] are building agility into their strategies and daily operations will receive higher allocations of investment capital,” according to Jim Berry, Deloitte’s US Real Estate leader, speaking in a statement.
New business models such as flexible leases and spaces–including coworking spaces–and mixed-use and non-traditional assets are expected to attract more investment.
To capitalize on this brave new world (and building on a major 2018 trend), CRE professionals need to shift their mindset from “rent collector” to “service provider” to embrace these new business models and ways of working.
“The nature of work is changing,” Professor Antony Slumbers from the University of Bristol, England, said when he opened the FlexOffice 2018 conference. As automation becomes more commonplace, spaces need to focus on creativity and productivity.
“An office that is designed around ‘old’ work will be obsolete,” Slumbers warned. “The office is dead. Long live the imaginarium.”
In conclusion: the real estate industry in 2019
The next year does appear to be one of stability for the CRE sector, with little on the horizon to truly disrupt the status quo.
Such expected stability will be comforting to many CRE professionals. But 2019 is not the time for complacency. CRE professionals need to adapt to new technologies, demands and ways of doing business. As such, agility is key for the real estate industry in 2019.
