Emerging Trends in Real Estate 2021
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in Real Estate 2021
ULI Baltimore Emerging Trends in Real Estate 2021
January 28, 2021
Dealing
with
Certain
UncertaintiesThe Economy Stumbles:
Real estate has the potential to hang on
Baltimore Real GMP Trillions 2012$
The Economy $211.5
• Unprecedented mandated recession
$201.5
impacted population and businesses
unevenly
$191.5
• Federal Reserve monetary support
has put a floor under asset prices
$181.5
• Capital still available for real estate Pre-Vaccine Post-Vaccine
Recession
Recovery Recovery
• Pace of the recovery will be key to $171.5
Re-Opening
the real estate sector
• Confidence will be needed for full $161.5
recovery
• Employment recovery may be $151.5
2019 2020 2021 2022
uneven
Sources: US Bureau of Economic Analysis, IHS Markit
Emerging Trends in Real Estate 2021
PwC 3Real Estate and the new Administration: Potential
opportunities and challenges
Additional • “America Rescue Plan” a $1.9T relief
1031 Exchange • Elimination of the 1031 exchange benefit for
COVID Relief package anyone with income over $400k
Capital Gains
Infrastructure • “Build back Better Plan”
Tax
• Proposed increase in capital gains tax rate
Affordable • 10 – year $640B plan to increase the Opportunity • Increased oversight and enhanced proof of
Housing stock of affordable housing Zones economic benefit
Immigration • Reform needed to raise immigration Increased • Higher level of oversight on the shadow
Reform levels above 2020’s 600,000 Oversight lending industry by FSOC
SALT • Restore SALT deduction from current Corporate and • Proposed increase in tax rates for
corporations and individuals with income
Deduction $10k limit Individual Taxes over $400k
Emerging Trends in Real Estate 2021
PwC 4Accelerated
trends or
fundamental
changesWork from Home:
Attitudes are changing
What percent of your office employees do you
anticipate will work remotely at least one day a week?
Few (0 - 29%) Many (30 - 59%) Most (60 - 100%)
Work from home (WFH)
Before COVID-19
Work from home experiment has
changed attitudes toward remote 36% 25% 39%
working - “working is working no
matter where you are”
During COVID-19
In the short term has led to rising 2% 21% 77%
productivity, but will gains be
sustainable over a longer-term?
After COVID-19 (projected)
Office is still going to be relevant,
but role may evolve to meet 11% 34% 55%
different needs
.
Source: PwC US Remote Work Survey, June 25, 2020
Emerging Trends in Real Estate 2021
PwC | Strictly Priv ate & Conf idential | Not For Distribution 6Future remote work plans
Executives and employees may have different plans
Remote work days per week
• Executives feel time in the
29%
office is needed to maintain FIVE DAYS
5%
culture
• Employees are focused on FOUR DAYS
10%
5%
flexibility – more than 50%
favor working remotely at 16%
least 3 days a week THREE DAYS
15%
• Future will depend on role 19%
and company TWO DAYS
29%
10%
ONE DAY
Source: PwC US Remote Work Survey 18%
January 12, 2021. Base: 1,200 US office workers
0% 5% 10% 15% 20% 25% 30% 35%
Employees Executives
Emerging Trends in Real Estate 2021
PwC | Strictly Priv ate & Conf idential | Not For Distribution 7The Great American Move
Flexibility increases choices % Change Market of
Market # of HHs
from 3rd Qtr Origin
The great American Move Austin 10,268 148% San Francisco
Inflow
Las Vegas 9,467 67% Los Angeles
WFH has increased flexibility about
where employees can live Phoenix 9,414 45% Los Angeles
Sacramento 9,283 62% San Francisco
Ongoing trend toward sunbelt 18-
Dallas 8,017 133% Los Angeles
hour cities has accelerated during
the pandemic
% Outside
Market # of HHs Destination
of Metro
Permanent move to New York 43,765 35.4% Philadelphia
retirement/vacation homes
Outflow
San Francisco 41,741 25.1% Sacramento
City to suburb dynamics have also Los Angeles 24,139 18.1% San Diego
changed with suburbs even more D.C. 12,417 13.3% Salisbury, MD
attractive – “willing to commute
further, if you don’t have to do it Chicago 6,163 12.5% Los Angeles
every day”
Households looking to relocate in 4th Quarter 2020
Emerging Trends in Real Estate 2021 Source: Data provided by Redfin, a national real estate brokerage.
PwC | Strictly Priv ate & Conf idential | Not For Distribution 8Market categories relevant to Baltimore – Sometimes it takes
more than one
Trends influencing markets
• 18 Hour cities continue to dominate the top 10
Specialized
• Work from home and great American move
have made these markets more attractive. It
may now be possible to live in a lower cost
location and still work remotely Visitor Hub Eds & Med
• The increase in the attractiveness of suburban
living due to a desire for less dense living is
also influencing the top markets.
Baltimore
• Negative impact of pandemic on Gateway
markets has increased interest in other tier
locations
Emerging Trends in Real Estate 2021
PwC 9Divergent outlooks
More
Industrial
Single family
Suburban
multifamily
• Pandemic has had an
Life Science
unequal impact on the
Data Center
current property type outlook
Certainty
• The uncertainty around the Essential retail
pace of the recovery raises Student housing
different questions around
each sector Non-essential retail
• Investor interest will impact Hospitality
future valuations Urban multifamily
Less CBD office
Negative COVID Impact Positive
Emerging Trends in Real Estate 2021
PwC | Strictly Priv ate & Conf idential | Not For Distribution 10Retail Transformation: Fast forward the evolution
Retail Transformation
Forced and voluntary closures of Ecommerce Sales as % of Total
retailers has accelerated retailer 18%
bankruptcies
Now that is an acceleration 16.1%
With stores closed and consumers 16%
concerned about the virus, online
sales surged – But 84% of sales 14%
14.3%
were from brick & mortar locations
Many consumers who had never 12%
had groceries or food delivered did 11.8%
so for the first time 10%
The move to experiential retail has
slowed due to social distancing 8%
requirements 7.9%
Retail will likely have a smaller brick 6%
& mortar footprint, what will be done Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20
with excess space
Emerging Trends in Real Estate 2021
PwC 11
.Retail finds new ways to serve the customer Buy online pickup in store may Ghost kitchens in tandem with Micro fulfillment: in person and be here to stay traditional restaurants local delivery Emerging Trends in Real Estate 2021 PwC 12
Just-in-Time to Just-in-Case:
Industrial space gets a boost from supply chain concerns
Just-in-Time to Just-in-Case
% of respondents who feel the pandemic will
Industrial has seen continued growth accelerate focus on the global supply chain
due to rise in E-commerce activity, 90%
81.9%
requiring both fulfilment and last mile 80%
locations
70%
Disruption to existing supply chains
due to trade war has been 60%
accelerated by the pandemic 50%
Greater inventory requirements and 40%
growth in near shoring
30%
manufacturing operations could be a
tailwind for warehouse 20% 15.3%
Political support due to view of near 10%
2.7%
shoring being a US job creator 0%
Disagree Agree Don't know
Emerging Trends in Real Estate 2021
PwC 13Location, Location, Safety:
Enhanced health safety may become the norm
Health concerns will be a more important factor across
all property types
Location, Location, Safety 2.9%
• Hesitancy of employees to return to
work/shopping/travel due to health 14.8%
concerns
• Cleaning protocols could become a “must
have” amenity
• Cleaning methods, tracking employee 82.3%
health and movement has opened new
markets for PropTech
Strongly Agree/Agree Unsure Strongly Disagree/Disagree
Emerging Trends in Real Estate 2021
PwC 14Fiscal Challenge:
Cities will be challenged by pandemic related costs
Fiscal Challenge
• States and cities faced with double
impact of rising costs and falling
revenue
• Timing and severity of revenue
decline will depend revenue source
• A lack of federal funds may lead to
immediate employee and service
cuts
• Real estate could be faced with
higher taxes and fees and
municipalities look for revenue
Source: National League of Cities
Emerging Trends in Real Estate 2021
PwC 15ESG: Two aspects have the real estate industry’s attention
Housing Affordability Racial/Social Inequity
• Pandemic has further highlighted the housing affordability • Opportunity to go from “Moment to Movement”
issue in the US • Focus on racial inequity was not caused by the
• Steps to moderate the potential impact of the recession, pandemic, but has been highlighted by the inequality of
may actually exacerbate the shortage of affordable the impact of the economic recession
housing by curtailing future development • The real estate industry has acknowledged contributions
• Eviction moratoriums could be seen as de facto rent to systemic racism, but now has an opportunity to
control participate in the reform
• Owners and landlords unable to collect rent may default • Ultimately, changing demographics and a slower
on financial obligations and defer maintenance and economic growth will make it a business issue
improvements
• Redevelopment of other property types; retail, office,
hospitality, may add to affordable housing supply on the
margin
Emerging Trends in Real Estate 2021
PwC | Strictly Priv ate & Conf idential | Not For Distribution 16Real Estate and Systemic Racism
Real estate industry acknowledges the need to join corporate America in ending
systemic racism
Personally Industry Industry Can Company has a
Understand Understands Influence Plan
80% 50% 47.5% 80% 60%
45% 70.3%
70% 68.2% 70% 49.0%
50%
40%
60% 60%
35%
40%
50% 50%
30% 27.7% 32.7%
24.7%
40% 25% 40% 30%
20%
30% 30%
20% 18.3%
20.9% 15% 22.3%
20% 20%
11.0% 10%
10%
10% 10% 7.4%
5%
0% 0% 0% 0%
Agree Don't Unsure Agree Don't Unsure Agree Don't Unsure Agree Don't Unsure
Agree Agree Agree Agree
Emerging Trends in Real Estate 2021
PwC 17Conclusion Uncertainty will likely continue 2021 a transition year Confidence No rebuilding required
Questions?
Contact me at andrew.warren@pwc.com
Thank you
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