Yes, It’s that Time of Year Again
At Parker Associates, we thought we’d start our prognosticating early. After all, it’s what we do. So, we’ll get started looking at 2019 right now. Where should developers and investors focus their attention? In a recent PWC survey and interviews, the best bets suggested by the results can be made in the following areas.
Warehousing and fulfillment
Warehousing and fulfillment represent the top development prospects among survey respondents. With increased need for last-mile delivery and e-commerce facilities, logistics and fulfillment continue to be a major opportunity for creating value. As tenants look for increasingly larger spaces, vacancy rates are tightening and rents are rising.
While the major metropolitan areas are often the areas of focus, development is taking place across the country, as seen in the recent announcement of a large warehouse facility that Amazon has announced as their second headquarters that will lead to the creation of thousands of full-time jobs. One interviewee mentioned the concept of industrial hotelling to allow companies to temporarily use warehouse space for seasonal needs, such as the holiday rush.
Senior lifestyle housing
Among the top development prospects with survey respondents is age-restricted housing, which one interviewee described as “a rising tide that can’t be denied.” With the number of the world’s population over age 65 having surpassed those under age 15 for the first time in history as shown in recent census data, several interviewees cited the development opportunities for senior lifestyle housing. While the development boom could lead to oversupply in certain markets, interviewees across the country predicted demand would generally be strong.
An important factor in driving demand for facilities that cater to seniors’ needs is the growth in the population aged 85 and older. The population in that age group also show a strong tendency toward collective dwellings, with 31% living in this type of housing in 2017. While demand will be strong, interviewees noted the complexities of investing in such a niche area—one person likened it to a “hotel on steroids”—and emphasized the importance of high-quality, mixed-use facilities that meet a range of lifestyles.
As the cost of entering the housing market makes home ownership an increasing challenge, potential homeowners will continue to turn to multi-family options as an affordable alternative. The survey results reflect that trend, with respondents citing multi-family homes as a top development prospect. A number of statistical outlets have been reporting brisk activity for building permits for multi-family dwellings. In fact, Statistics Canada reported a record $3.1 billion in multi-family building permits for May 2018. Interviewees cited multi-family rental prospects as being particularly strong.
Property type outlook for 2019
While there are regional variations in the outlook for different property types, developers, investors and property owners did strike some common notes in their assessments.
As the retail sector continues to grapple with disruption, the disappearance of several icons has created new opportunities for landlords, including backfilling with more resilient anchor tenants, using non-retail tenants to generate foot traffic and redeveloping and intensifying malls as mixed-use properties. Landlords are also turning to data analytics to develop new rental models, deliver insights about tenants and improve operations.
Despite generally positive prospects for single-family housing, supply is tight in major cities and affordability remains a major concern in major markets, in part due to rising interest rates and tougher mortgage stress tests. While speculation taxes imposed by various locations have affected sales and prices, there have been seen gradual rebounds. The levies have led to a general softening of the market, although strong demand and supply constraints continue to support rising prices.
Tougher mortgage rules, rising rates and speculation taxes have yet to show a clear effect on the condo market. Its continued strength speaks to the affordability crunch as much as to lifestyle choices. Although there’s rising concern about the number of new condo projects in major centers, demand will remain strong as long as population growth and economic expansion continue and house prices remain out of reach for so many.
According to JLL Research, the national vacancy rate was stable at 12% in Q2 2018, compared to 12.4% in Q2 2017. The tech industry continued to fuel leasing activity, which is causing landlords to look at new ways to modernize supply. Leading the transformation is the growing co-working trend. According to JLL Research, co-working and flexible workspaces are forecast to make up 30% of corporate real estate portfolios by 2030.
Over the past decade, the amount of rental property under construction across the country has tripled and is now on par with the construction of housing stock built for home ownership. Rental rates are striking new heights, and with tightened mortgage rules making it more difficult to buy property, developers are seeing high demand for rental housing.
The rising popularity of online retail is driving an unprecedented need for industrial space for distribution and return centers. The sector is seeing significant rental increases for the first time in years. Vacancy rates are particularly tight for large, big-box distribution space. Other niche areas of interest include cannabis production facilities, data centers and spaces with large electrical capacity for cryptocurrency mining. While the major metropolitan areas are particularly hot markets, growth is strong across the country.
We are ready to help get things rolling with your specific project. Parker Associates is always looking at the cutting edge of the industry and continue to stay abreast of all the activities going on in key markets. We work closely with PTC Computer Solutions to define technological trends in the industry to help our clients. Where is the industry going and what are consumers using to find what they are looking for? Ask us. These are excellent questions and we can help. Contact Parker Associates to help you with your unique steps to success.
David WB Parker is a principal of Parker Associates of Jacksonville, Florida, marketing consultants to the real estate industry; President of PTC Computer Solutions, IT Specialist, and an active real estate sales professional with PARFAM REALTY based in Jacksonville, FL. He is also a principal partner of the REMA Team of professionals. He can be reached at 904-607-8763 or via email firstname.lastname@example.org.