CRE Continues Momentum into 2015, but Investors Look Beyond Traditional Core Markets

The U.S. commercial real estate market has been gaining strength, and that trend is expected to continue in 2015, according to responses to the latest “Emerging Trends in Real Estate Report.”

The U.S. commercial real estate market has been gaining strength, and that trend is expected to continue in 2015, according to responses to the latest “Emerging Trends in Real Estate Report.” Co-published by PwC US and the Urban Land Institute, its results were discussed at the ULI Fall Meeting in New York City last week.

Improving fundamentals and a strong appetite for investment, both domestic and foreign, are two key factors that are expected to fuel commercial real estate activity, not just in the traditionally popular markets like New York City and San Francisco but also in other parts of the nation. Although located outside these coastal gateways, these rising cities are “positioning themselves as highly competitive, in terms of livability, employment offerings and recreational and cultural amenities,” observed ULI global CEO Patrick Phillips.

The fact that New York is no longer listed as the largest commercial property market in the nation—and was not even included in the top five cities for commercial real estate investment in 2015, with Manhattan ranked 14 on the list and Brooklyn at No. 22—might be a little difficult to digest for some investors and industry professionals.

However, in 2015, the spotlight will be on Texas, where domestic energy production and hydraulic fracturing are already generating hundreds of jobs throughout the state. As a matter of fact, one of the recurrent themes in the PwC US/ULI market report is “jobs chasing people,” which will be the No. 1 rule in the labor market. On that note, three of the top cities to look at for commercial real estate in 2015 are located in Texas: Houston ranks first on the list and is expected to offer the most significant amount of investment opportunity, thanks to the growing energy industry; Austin is No. 2 based on the appeal to the Millennials and the lower cost of doing business in this city; Dallas-Fort Worth ranks fifth on the list, thanks to the area’s economic diversity that is projected to make the current growth rate more sustainable.

Other cities included in the Emerging Trends list for 2015 include Denver at No. 4—with the city’s energy industry and exposure to technology having caught investors’ attention—and San Francisco at No. 3. The City by the Bay was last year’s No. 1 city, but it only lost that status this year because other cities have had better momentum.

The Emerging Trends report report also found that the urban cores that combine housing, retail, dining and walk-to-work offices are spurring investment and development, while raising quality of life and fostering 18-hour cities instead of the traditional nine-to-five cities.

The Millennials’ tendency to rent longer rather than diving into homeownership was another key point. According to responses, Millennials’ housing preferences will impact the apartment sector for the next few years. However, “Generation Z” is expected to trigger some changes in the industry in the 2020s.