IMG Principals Neil Schimmel and Karlin Conklin selected the following highlights from the ULI Emerging Trends in Real Estate® Report 2019, the most highly regarded and widely read forecast report in the real estate industry.
Expected Best Best: Garden Apartments
While the multifamily sector registered an overall NCREIF total return of 6.38 percent, the garden apartment component was near a double-digit total return at 9.33 percent. Appreciation in value accounted for the over-performance in the garden apartment group. Pricing for garden complexes reflects a higher-yield 5.7 percent cap rate, compared with 4.9 percent for mid-to-high-rise properties.
The strong move toward secondary and tertiary markets, and the return of interest to suburban assets—especially by private equity—bode well for these multifamily assets.
U.S. Markets to Watch in 2019
“Carolina markets continue to see a population influx . . . a lower cost of living and employers see the quality of the labor force.”
The Emerging Trends in Real Estate® 2019 survey respondents like the opportunities in the South’s Atlantic region. All 11 markets that make up the region are ranked in the good potential for investment and development. Opportunities are expected to be readily available in Raleigh/Durham, Charlotte, and Atlanta. The region reflects several trends we have been following for the past several years: the continuing attractiveness of primary markets like Atlanta; the rising attractiveness of non-primary markets such as Raleigh/ Durham and Charlotte.
The ability to attract qualified workers will benefit a number of the South’s Atlantic markets. Projected 2019 employment growth rates are expected to be well above the national growth rate in Raleigh/Durham, Charlotte and Atlanta. The breakdown of the population also appears to be favorable in the region. Atlanta, Charlotte, Charleston, Virginia Beach/Norfolk and Raleigh/Durham all have a higher percentage of their population under the age of 44. Focus groups in Charlotte, Atlanta, Raleigh/Durham, and Richmond all point to the attractiveness of the market to younger residents.
U.S. Markets to Watch in 2019 – Top 10 Overall Real Estate Prospects
1 Dallas/Fort Worth
2 New York–Brooklyn
10 Tampa/St. Petersburg*
*IMG Portfolio Markets
Asset Management: “We’re all in this together”
With “hold” maintaining its strong score in the Emerging Trends buy/hold/sell barometer, asset management is poised to occupy an even greater than usual place in the minds of real estate investors and property operators in the years ahead. It is not that asset management is ever unimportant. But in a period when transaction velocity is easing and when owners worry about reinvestment risk in the event of a sale, the ability to extract additional value from their existing portfolio is an important way to tick yields in the right direction. Moreover, with intensely competitive conditions prevailing in the field of capital raising, evidence of astute asset management is a key point in attracting future investment.
The Equity Sector
Beyond the roster of “usual suspects,” there is an intriguing ferment of smaller investors (or potential investors) looking at ways to take advantage of a real estate industry that is enjoying the fruits of a robust recovery. Some of these are innovative, even experimental, as in the crowdfunding space. Others are familiar, such as the 1031 exchange market that survived in the tax reform promulgated late last year and some real estate mutual funds providing a mix of equity windows into the property market. There also is a vast pool of capital eying entry into the commercial property space, namely the defined contribution retirement plans—potentially the biggest “game-changer” out there for real estate capital markets.
View the complete, 121-page ULI Emerging Trends in Real Estate® 2019 Report online.