Emerging Trends in Real Estate 2017

Emerging Trends in Real Estate® is a trends and forecast publication now in its 38th edition, and is one of the most highly regarded and widely read forecast reports in the real estate industry. Emerging Trends in Real Estate® 2017, undertaken jointly by PwC and the Urban Land Institute, provides an outlook on real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues throughout the United States and Canada.
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<p>Emerging Trends 
in Real Estate®
United States and Canada 2017
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Emerging Trends in Real Estate® 2017
A publication from: 
i
Emerging Trends in Real Estate® 2017
Contents
 3 
 Chapter 1 Playing for Advantage, Guarding  
the Flank
 4 Context: A Kinder, Gentler Real Estate Cycle?
 5 Optionality
 6 
Transformation through Location Choice
 8 
 Recognizing the Role of the Small  
Entrepreneurial Developer
 9 
Labor Scarcity in Construction Costs
 11 
 Housing Affordability: Local Governments  
Step Up
 13 Gaining Entry beyond the Velvet Rope
 14 
The Connectedness of Cities
 15 Ready for Augmented Reality?
 17 
Blockchain for 21st-Century Real Estate
 18 
Expected Best Bets for 2017
 20 Chapter 2 Capital Markets
 21 
The Debt Sector
 27 
The Equity Sector
 33 
Summary
 34 Chapter 3 Markets to Watch
 34 
2017 Market Rankings
 34 
 Market Summaries
 71 Chapter 4 Property Type Outlook
 72 
Industrial
 74 
Apartments
 76 
Single-Family Homes
 77 Hotels
 79 Office
 81 Retail
 83 Niche Sectors
 85 
Summary
 86 
 Chapter 5 Emerging Trends in Canadian  
Real Estate
 86 
 More Than Mixed Use, It’s about Building 
Communities
 87 
Affordability on the Decline
 89 Renting for the Long Term
 90 
 Technology Disruptors Hold a Competitive 
Advantage
 90 Global Uncertainties Weigh on the Mind
 90 Ongoing Oil and Gas Woes
 92 Waiting for Deals
 92  Economic Outlook
 93  Property Type Outlook
 96 Markets to Watch in 2017
 102 
Expected Best Bets for 2017
 104 
Interviewees
Emerging Trends
in Real Estate®
2017
ii Emerging Trends in Real Estate® 2017
Editorial Leadership Team
Adam Boutros*
Aki Dellaportas
Alan Chu
Amy E. Olson
Amy Shanaman
André Voshart*
Andrew Alperstein
Andrew Popert*
Angelo Talamayan*
Annie Labbé*
Armando Pinedo*
Bill Kropp
Bill Staffieri
Blake Evans
Braiden Goodchild*
Brett Matzek
Brian J. Robertson
Brian Keida
Brian Nerney
Bud Thomas
Carlie Persson*
Carlo Bruno
Carol Devenney*
Charles Campany
Chase Evans
Chris Bailey
Chris Dietrick
Chris Potter*
Chris Vangou*
Christina Howton*
Christine Lam*
Christopher Gerra
Christopher Mill
Christopher Nicholaou
Court Maton
Courtney Sargent
Dan Boyce
Daniel D’Archivio*
Daniel Genter
Danielle Sercu
Dave Baranick
David Baldwin
David Baranick
David Leavitt
David Seaman
David Voss
Donald Flinn*
Douglas Struckman
Dwayne MacKay*
E. Robert Young
Elliot Kung
Emily Pillars
Eric Andrew*
Eric St-Amour*
Erika Ryback
Ernest Hudson*
Eugene M. Chan
Frank Magliocco*
Fred Cassano*
Frederic Lepage*
Gimena de Buen Paz*
Gloria Park
Gordon Matheson*
Haley Anderson
Heather Drysdale*
Heather Lashway
Hillary Boulard*
Howard Ro
Ian Gunn*
Ian Nelson
Isabelle Morgan
Jacqueline Kinneary
James MacKenzie
James Oswald
Jamie Rich
Janelle Waters
Janice McDonald*
Jasen Kwong*
Jason Pagliaro*
Jeff Kiley
Jenna Liou
Jeremy Lewis
Jillian Michaels*
Jim Oswald
John Bunting*
Jonathan Sessa
Joseph Pitsor
Joseph Schechter
Julia Powell
Katie Braha*
Keith Durand
Ken Griffin*
Kevin Fossee
Kevin Nishioka
Kristen Conner
Kristy Romo
Kyle Kelly
Laura Daniels*
Laura Hildebrand*
Leah Waldrum
Lee Overstreet
Lee-Anne Kovacs*
Logan Redlin
Lori-Ann Beausoleil*
Lorilynn Monty
Lou DeFalco
Luiza Carneiro
Marcel Sow
Maria Aiello*
Marshall Yellin
Martin Schreiber
Mary Wilson-Smith*
Matthew Berkowitz
Matthew Manza
Michael Alicastro
Michael Anthony
Michael Elger
Michael Shields*
Miranda Hardy*
Miranda Tse
Miriam Gurza*
Mori Contreras
Nadia King*
Nadja Ibrahim*
Naveli Thomas*
Nicholas Mitchell
Nick Ethier*
Oliver Reichel
Patrick Groome
Peter Wilkins
Rachel Klein
Rahim Lallani*
Rajen Shah*
Raynald Lafrance*
Renee Sarria
Rich Fournier
Richard Fournier
Richard Probert*
Rick Barnay*
Rick Munn
Rob Sciaudone
Roberto D’abate*
Ron Bidulka*
Ross Sinclair*
Ryan Ciccarone
Ryan Dumais
Sabrina Li
Sam Melehani
Samuel Hadley 
Scott Berman
Scott Tornberg
Sean Hiebert*
Serge Gattesco*
Seth Kemper
Seth Promisel
Shareen Yew
Simon Dutil*
Stan Oldoerp
Stephan Gianoplus
Steve Baker
Steve Tyler
Steve Walker
Steven Weisenburger
Susan Farina*
Susan Smith
Tim Bodner
Tim Conlon
Tori Lambert
Tracy Howard
Tressa Teranishi*
Trevor Toombs*
Wade Yacker
Warren Marr
William Hux
William Keating
Yousuf Abbasi
Zachary Broujos
Zoe Funk
*Canada-based.
PwC Advisers and Contributing Researchers
Emerging Trends Chairs
Mitchell M. Roschelle, PwC
Kathleen B. Carey, Urban Land Institute
Authors
Hugh F. Kelly
Alan C. Billingsley
Andrew Warren
Anita Kramer
Senior Advisers
Christopher J. Potter, PwC, Canada
Miriam Gurza, PwC, Canada
Frank Magliocco, PwC, Canada
Contributors
Sarene Marshall, Urban Land Institute
Stockton Williams, Urban Land Institute
ULI Editorial and Production Staff 
James A. Mulligan, Senior Editor
David James Rose, Managing Editor/Manuscript Editor
Betsy VanBuskirk, Creative Director
Anne Morgan, Cover Design
Deanna Pineda, Muse Advertising Design, Designer
Craig Chapman, Senior Director of Publishing Operations
Eva Su, Director, Capital Markets
Emily Vaughan, Manager, District Councils
Andrew Wahlgren, Intern, Capital Markets
Emerging Trends in Real Estate® is a trademark of PwC and is regis-
tered in the United States and other countries. All rights reserved.
At PwC, our purpose is to build trust in society and solve important 
problems. We’re a network of firms in 157 countries with more than 
208,000 people who are committed to delivering quality in assurance, 
advisory, and tax services. Find out more and tell us what matters to 
you by visiting us at www.pwc.com.
© 2016 PwC. All rights reserved. PwC refers to the PwC network and/
or one or more of its member firms, each of which is a separate legal 
entity. Please see www.pwc.com/structure for further details. 
© October 2016 by PwC and the Urban Land Institute.
Printed in the United States of America. All rights reserved. No part of 
this book may be reproduced in any form or by any means, electronic 
or mechanical, including photocopying and recording, or by any infor-
mation storage and retrieval system, without written permission of the 
publisher.
Recommended bibliographic listing:
PwC and the Urban Land Institute: Emerging Trends in Real Estate® 
2017. Washington, D.C.: PwC and the Urban Land Institute, 2016.
ISBN: 978-0-87420-391-2
1
Emerging Trends in Real Estate® 2017
Notice to Readers
Emerging Trends in Real Estate® is a trends and forecast publication now in its 38th 
edition, and is one of the most highly regarded and widely read forecast reports in the 
real estate industry. Emerging Trends in Real Estate® 2017, undertaken jointly by PwC 
and the Urban Land Institute, provides an outlook on real estate investment and devel-
opment trends, real estate finance and capital markets, property sectors, metropolitan 
areas, and other real estate issues throughout the United States and Canada.
Emerging Trends in Real Estate® 2017 reflects the views of individuals who completed 
surveys or were interviewed as a part of the research process for this report. The 
views expressed herein, including all comments appearing in quotes, are obtained 
exclusively from these surveys and interviews and do not express the opinions of 
either PwC or ULI. Interviewees and survey participants represent a wide range of 
industry experts, including investors, fund managers, developers, property compa-
nies, lenders, brokers, advisers, and consultants. ULI and PwC researchers personally 
interviewed more than 500 individuals and survey responses were received from more 
than 1,500 individuals, whose company affiliations are broken down below.
Private property owner or developer 
31.1%
Real estate advisory or service firm 
27.9%
Investment manager/adviser 
6.7%
Homebuilder or residential land developer 
6.6%
Bank lender 
4.9%
Equity REIT or publicly listed real estate property company 
4.8%
Institutional equity investor 
4.6%
Private REIT or nontraded real estate property company 
2.1%
Institutional lender 
1.2%
Real estate debt investor 
0.6%
Securitized lender 
0.3%
Mortgage REIT 
0.1%
Other entity 
9.2%
Throughout the publication, the views of interviewees and/or survey respondents 
have been presented as direct quotations from the participant without attribution to 
any particular participant. A list of the interview participants in this year’s study who 
chose to be identified appears at the end of this report, but it should be noted that all 
interviewees are given the option to remain anonymous regarding their participation. 
In several cases, quotes contained herein were obtained from interviewees who are 
not listed. Readers are cautioned not to attempt to attribute any quote to a specific 
individual or company.
To all who helped, the Urban Land Institute and PwC extend sincere thanks for sharing 
valuable time and expertise. Without the involvement of these many individuals, this 
report would not have been possible. 
2 Emerging Trends in Real Estate® 2017
3
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
The game of chess is not a game of chance, but requires 
mastery of a complex set of skills that are both art and science. 
A player needs to be alert, equally aware of the strengths and 
weaknesses of his own position and that of his opponent. A 
plan is needed, most assuredly. The number of possible games 
that can develop, however, exceeds the number of atoms in the 
universe. Hence, flexibility within the plan is critical. Each move 
has a short-term impact and is also a step in positioning for a 
victorious endgame.
Like chess, the real estate playing field requires an artful mix of 
skills, tactics, and strategies. A chessboard is limited to just 64 
squares and is two-dimensional. Real estate’s domain covers a 
lot more space, and requires thinking across economic, social, 
political, and technological dimensions. 
Beginners may often extend themselves swiftly and aggres-
sively into the fray, seeking quick advantage but overlooking the 
impact of countermeasures that are obvious to more experi-
enced players. Strategic thinkers see beyond the “next move” 
and anticipate the development of a series of moves that, taken 
together, create a more powerful control of the board. 
As we consider the emerging trends going into 2017, we try to 
look two or three moves ahead in the fascinating and competi-
tive field that is the real estate industry. And, since no single 
move can be considered in isolation, it will be important to see 
the pattern linking several trends as they evolve interactively.
Playing for Advantage, Guarding the Flank
“Big assets, big cities, big capital, and big competition. The U.S. is more in favor  
than the rest of the world right now.”
Exhibit 1-2 Emerging Trends Barometer 2017
abysmal
poor
excellent
fair
Sell
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
good
Buy
Hold
Source: Emerging Trends in Real Estate survey.
Note: Based on U.S. respondents only.
Exhibit 1-1 U.S. Real Estate Returns and Economic Growth
–40%
–30%
–20%
–10%
0%
10%
20%
30%
40%
2017*
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
–5%
–3%
–1%
1%
3%
5%
In
de
x 
ch
an
ge
G
D
P
 c
ha
ng
e
NAREIT
NCREIF
GDP
NCREIF total 
expected return 
7.0
NAREIT total 
expected return 
8.0
Sources: NCREIF, NAREIT, Bureau of Economic Analysis/U.S. Department of Commerce,  
ULI Real Estate Consensus Forecast.
*NCREIF/NAREIT and GDP data for 2016 and 2017 are based on forecasts for these 
indicators in the ULI Real Estate Consensus Forecast, October 2016. 
4 Emerging Trends in Real Estate® 2017
1. Context: A Kinder, Gentler Real Estate 
Cycle?
The disruption wrought by the global financial crisis violently 
upended financial markets around the world and hammered real 
estate markets in the United States. In a real sense, the rever-
berations continue. Real estate transaction volume across the 
country rebounded, but development remains below historical 
norms for most property types. A major publisher of real estate 
news and commentary says, “We have never been in a real 
estate cycle like this.” Overall, there is a sense that real estate 
has learned painful but valuable lessons. This time, real estate 
will not likely be the trigger for a business cycle recession. And, 
as far as the number of “innings” remaining, here is what one 
chief executive officer (CEO) with multiple international invest-
ment partnerships said: “Don’t worry about innings. This is a 
doubleheader.”
At 85 months’ duration (as of August 2016), this business cycle 
was already the fourth longest in U.S. history, far longer than the 
average 58-month upturns since World War II. Many concurred 
with an institutional equity investor describing this as “a mature 
phase of the cycle.” As is so often the case, averages are of little 
help in understanding business cycle duration. Cycles have 
been lengthening over the past half-century, and both the 1980s 
and 1990s saw growth phases of 92 and 120 months, respec-
tively. In a word, cycles do not die of old age.
Little in the U.S. macroeconomic data suggests overheat-
ing, the primary symptom of trouble ahead for the cycle. Real 
gross domestic product (GDP) growth has settled in at about 2 
percent per year, and job growth—monthly aberrations notwith-
standing—is running at about a 1.7 percent pace, approximately 
2.5 million annually. The Federal Reserve has been exception-
ally cautious about raising interest rates, due to volatility in the 
data, in financial markets, and in the geopolitical climate. The 
Fed has shown little inclination to “take away the punchbowl.” 
A major factor in seeing the real estate cycle extending even 
deeper into the future is the difficulty of securing construc-
tion financing. This is effectively keeping the oversupply that is 
typical of a late cycle from emerging this time around. An inter-
national investment executive notes that bank regulators and 
new risk rules have enforced discipline on lending, a primary 
factor in the development slowdown. 
The volume of available capital that is seeking “core properties” 
has pushed pricing past prior peaks in many markets, making 
some moves on the chess board costly. Reduced leverage 
ratios have shifted more risk toward the equity investor. As one 
longtime observer of institutional investors put it, “We are in the 
‘white knuckle’ phase of the cycle. Champagne is not flowing  
at closings.” 
Traditional sources of capital are favoring a “risk-off” approach. 
Acquisitions are extremely selective, with cap-rate compression 
having spread into secondary markets over the last two years. 
“Risk is on the demand side,” in the view of a West Coast–based 
investment manager.
Exhibit 1-3 Firm Profitability Prospects for 2017
0%
20%
40%
60%
80%
100%
2017
2016
2015
2014
2013
2012
2011
2010
Good–excellent
Abysmal–poor
P
er
ce
nt
ag
e 
of
 r
es
po
nd
en
ts
Fair
Source: Emerging Trends in Real Estate surveys.
Exhibit 1-4 Real Estate Business Prospects
1
Abysmal
3
Fair
2
Poor
4
Good
5
Excellent
2017
Real estate security
investors
Real estate lenders
Real estate investment
managers/advisers
Real estate services
Commercial real estate
developers
Real estate equity
investors
Residential builders/
developers
Real estate owners 3.90
3.67
3.67
3.64
3.58
3.58
3.47
3.33
Source: Emerging Trends in Real Estate 2017 survey.
5
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
Where many felt a year or two ago that real estate cap rates had 
no direction to go but up, an emerging consensus believes that 
such a move is not likely in the near term and that the current 
level of risk premiums could sustain a modest further decline in 
going-in cap rates. This alone is a sign of how unusual the cur-
rent cycle has become.
2. Optionality 
Both on the investor side and the user side of the market, 
optionality—not just one use, not just one user, not just one 
user profile—may be gaining favor as a way to navigate the 
cross-currents of volatile markets. The potential extent of such 
optionality is as wide as the industry itself. Says one interviewee, 
the principal of a boutique investment holding company, “The 
developer/financier that understands optionality in their projects 
is the winner. Optionality will be of great value over the next 
generation.”
Optionality from a user standpoint allows for the adjustment 
of space needs to vary in terms of size, location, and use on 
an as-needed basis. This has already been the attraction of 
gig workers, sole proprietors, and perhaps very small firms to 
cowork space, where the provider of that space is most defi-
nitely pursuing more than “just one user.” The ultimate optionality 
would eliminate the need for even large firms to lock into a lease 
that is tied to a set amount of space in a predetermined location. 
And this has now happened. A Fortune 500 communications 
company recently entered into a deal with an international pro-
vider of shared-office space. The tenant in this case proposes 
to cut its occupancy costs in half within five years. In addition 
to the cost savings, the tenant touts the strategy to employees 
as promoting productivity, collaboration, and community in its 
noncampus administrative centers. The office provider gains 
a set amount of cash flow from the user, but also maintains the 
option of backfilling any unused space that may not be used by 
the core tenant that month. 
Optionality gives property owners the ability to maximize highest 
and best use, based on immediate tenant demand. Pursuing 
“not just one use,” a Washington, D.C., investor/developer has 
launched a prototype operation in Alexandria, Virginia, where 
1,000-square-foot units can be, at the tenant’s discretion, 
either housing, office space, or both. Common-area amenities 
abound, including a pet spa, sports and recreational facilities 
(indoor and outdoor), and even a soundproof music studio. The 
property is a suburban 39,000-square-foot office building that 
was empty at acquisition and was bought at a 65 percent dis-
count to its original valuation. The promoter believes that dozens 
of such opportunities can be found across the United States, 
provided that zoning is flexible.
The opportunities are real, but the execution could be compli-
cated. There are so many moving parts, as a large institutional 
investment manager pointed out: “We look at technology and 
the inroads of the sharing economy. Take office sharing: what is 
the cyclical risk for an office-sharing lease in a downturn? Take 
retail space that is shifting from chain stores to restaurants—res-
taurants require higher TIs [tenant improvements], as do service 
tenants like gyms, spas, medical uses—but what is the credit 
behind those leases?”
Optionality can have an impact on what could be appropriate for 
a market. Consider the multifamily sector, in rental apartments 
Exhibit 1-5 Time Horizon for Investing
0%
10%
20%
30%
40%
2016
2017
10+ years
5–10 years
3–5 years
1–3 years
Percentage of total survey respondents
10.4%
32.7%
30.5%
26.4%
9.0%
31.7%
32.9%
26.4%
Source: Emerging Trends in Real Estate surveys.
Note: Based on U.S. respondents only.
Exhibit 1-6  New Commercial Square Footage as 
Percentage of Inventory
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
2
4
6
8
10
12
14
16
2016
2012
2008
2004
2000
1996
1992
1988
1984
1980
Completions as 
percentage of inventory
Vacancy rate
V
ac
an
cy
 r
at
e
C
om
pl
et
io
ns
 a
s 
pe
rc
en
ta
ge
 o
f i
nv
en
to
ry
Source: REIS Inc.  
Note: Includes industrial, office, and neighborhood and community retail space.
6 Emerging Trends in Real Estate® 2017
and condominiums, and the pursuit of “not for just one user pro-
file.” The head of a REIT sees an emerging millennial market for 
ownership units, but one whose growth is bounded by a “keep-
ing our options open” attitude: “Jobs are no longer careers, and 
millennials are not yet looking for the commitment of owning a 
home. They are footloose in the job market, and footloose as to 
roots in the community.” Developers hedge their bets by build-
ing condo quality into rentals—an option that makes sense at 
today’s ultra-low cap rates—knowing that market demand can 
shift swiftly between the two forms of product. Another multifam-
ily option being discussed in the market is the development of 
projects that appeal to multiple generations—millennials and 
baby boomers, for example. The two groups are looking for 
similar amenity packages but differ on the desired size and 
price point of the units
Keeping your options open has never seemed to be a wiser 
approach. 
3. Transformation through Location Choice
A new breed of CEOs has been turning a widespread economic 
development approach on its head, transforming some cities in 
the process. Instead of negotiating for the most generous pack-
age of public incentives possible, these business leaders take 
the tack that private employers can catalyze civic revivals and, 
in benefiting communities, can benefit their enterprise as well.
CEOs speak of the “triple bottom line” of financial, social, and 
environmental success. A recent study counted nearly 500 
companies whose downtown location choices have been a 
potent factor in urban revitalization. Corporate leaders under-
stand the impact, but also stress the self-interested economic 
case: attracting talent, penetrating urban markets, and the supe-
rior returns obtainable in live/work/play locations. Diverse cities, 
ranging from Cleveland and Oakland to San Diego and Raleigh, 
have benefited.
The first wave shows us what this is really about.
The two most prominent efforts with track records under their 
belts have been in Las Vegas and Detroit. With several years of 
history, we can see that successes and struggles have occurred 
in both ventures. Not every gambit proves fruitful and the 
measure of decades is more appropriate for evaluating results 
in revitalizing cities. Even now, however, we can see what trends 
are more promising and what we can learn from stumbles.
The downtown Las Vegas efforts have displayed the kind of trial-
and-error experimentation that epitomizes the venture capital 
approach. About $150 million has been spent on Las Vegas’s 
Exhibit 1-7 Importance of Issues for Real Estate in 2017
1
No
importance
2
Little
importance
3
Moderate
importance
4
Considerable
importance
5
importance
1
2
3
4
5
Great
Economic/financial Issues
Real estate/development issues
Sharing economy
Taxes and regulation 
Income inequality
Global economic growth
Macroeconomic issues
(inflation, dollar strength)
Interest rates and cost of capital
Job and income growth
Social/political issues
Political landscape
Education (cost and availability)
Availability of qualified labor
Immigration
Government budget issues
(local/state/federal)
Social inequality
Terrorism/war/epidemics
Risks from extreme weather
Wellness health features
State and local water regulation
Environment and sustainability
Housing costs and availability
Infrastructure/transportation
Capital availability
Land and construction costs
4.45
4.04
3.62
3.44
3.44
3.36
2.68
3.87
3.54
3.47
3.35
3.18
2.75
2.69
4.30
3.99
3.91
3.87
3.20
2.99
2.63
2.47
Source: Emerging Trends in Real Estate 2017 survey.
7
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
Climate Change and Real Estate
The Emerging Trends in Real Estate® survey asks respon-
dents about the importance to their business over the next 
year of risks emanating from environmental issues (including 
climate change). For the second straight year, the response 
was tepid. While the importance of general sustainability 
did increase very slightly, specific climate change implica-
tions—including water regulations, or risks from extreme 
weather—continue to be ranked very low compared with job 
growth, land costs, and capital availability (see exhibit 1-7). 
Climate impacts, in creeping forms such as drought or sea-
level rise, or acute forms like severe storms, can destabilize 
entire regions. The U.S. National Security Strategy “is clear 
that climate change is an urgent and growing threat . . . 
contributing to increased natural disasters, refugee flows, 
and conflicts over basic resources such as food and water.” 
Interestingly, immigration and conflicts (war/terrorism) 
ranked more highly by Emerging Trends respondents  
than climate impacts themselves.
E.T. respondents’ low ranking of most climate-related topics 
may be attributed, at least in part, to the questions’ one-year 
time frame. Nevertheless, there is growing alarm among 
leading investors, insurers, business leaders, and policy 
makers and increasing evidence of the potential impacts of 
climate change (or actions to address it) on real estate: 
●
● Lloyd’s City Risk Index illuminates the financial risks of 
flooding in some top U.S. real estate markets:
●
● These losses are not all insured or insurable. SwissRe 
says that there is a widening “protection gap”: “On aver-
age, only about 30 percent of catastrophe losses have 
been covered by insurance over the last ten years. That 
means that about 70 percent of catastrophe losses—or 
$1.3 trillion—have been borne by individuals, firms, and 
governments.” 
●
●
In 2015, 195 nations signed the U.N. Paris Agreement 
on climate change, which sets out bold policy plans to 
reduce climate-change-causing carbon emissions. Real 
estate is a prime target for these reductions, since energy 
used in buildings is the largest source of carbon pollution 
worldwide (nearly one-third).  
●
● Access to capital is increasingly likely to be affected by 
investor and lender perceptions of climate risk, too. Four 
hundred investors, representing $24 trillion in assets, 
have pledged to “ensure that they are minimizing and 
disclosing the risks and maximizing the opportunities 
presented by climate change.” 
●
● ULI’s Greenprint Vol. 7 Performance Report, Tenant 
Energy Optimization Program, and Returns on Resilience 
show how real estate leaders are taking action to address 
climate change and achieving bottom-line success.
ULI.org/sustainability.
US Cities’ GDP at Risk from Flooding
Global rank
City
GDP at risk ($B)
3
Los Angeles
13.3 
4
New York
13.1 
12
Houston
7.8 
16
Chicago
6.2 
20
San Francisco
5.5 
Total
45.9 
Homes at Risk from Sea-Level Rise
State
Homes  
potentially 
underwater (no.)
Housing 
stock affected 
(%)
Value at 
risk ($B)
Florida
934,411 
12.56
413.0
New Jersey
190,429 
7.35
93.1
New York
96,708 
2.1
71.0
Massachusetts
62,069 
3.1
51.2
California
42,353 
0.44
49.2
South Carolina
83,833 
4.42
45.0
Hawaii
37,556 
9.07
25.3
Washington
31,235 
1.32
13.7
Texas
46,804 
0.61
12.0
●
● Zillow, looking at the impact of sea-level rise on homes 
across the United States, concluded that 1.9 million 
homes—worth a combined $882 billion—are at risk 
of being physically underwater by 2100, with some 
markets being severely affected:
8 Emerging Trends in Real Estate® 2017
old City Hall; the development of a retail store, restaurant, and 
entertainment venue called “the Downtown Container Park”; and 
the Airstream Village, where residents live in the classic trailers 
or in distinctive RVs called Tumbleweed Tiny Houses. Another 
$150 million was dedicated to interest-free loans for startups, 
which have had a range of success. On the whole, the trajec-
tory is upward. Las Vegas’s downtown is no longer given up for 
dead, but stands as a much more vibrant—and safer—district. 
These days, it seems as though everybody wants to see what’s 
happening in downtown Detroit. The relocation of a company’s 
headquarters from suburban Livonia, Michigan, to downtown 
first placed 1,700 employees into Detroit’s depressed central 
business district (CBD). That number now stands at 12,500. 
With one company controlling an entire district, attention is  
paid to how all the pieces fit together so that great synergies 
are created 
These were bold and inspiring moves and impactful invest-
ments; big businesses can be catalytic. What’s left to do to and 
by whom? A complete 21st-century urban transformation into a 
live/work/play environment requires special attention to “live”—
that is, to housing density, since the “work/play” components 
depend upon a residential base for expansion and growth. 
These, of course, are the same key ingredients of success that 
are transforming 18-hour cities across the United States. 
For those places still struggling, in the meantime, there is great 
opportunity in the existing inventory of vacant land, much of 
which is held “in rem” by the city. A portion of this could be 
placed in a land trust for future development, which would 
enable future affordable housing to be developed without future 
land price inflation. Developer-investors could hold shares in the 
trust, and local banks with Community Reinvestment Act obliga-
tions might be able to provide financing.
Collaboration with city government and the experienced devel-
opment community can promote a more unified and long-lasting 
successful approach. The longer-term test will be the degree to 
which the initial corporate/government collaboration acts as a 
catalyst for other investment. The object is not to create a 21st-
century “company town.” It is to redevelop a diverse and vibrant 
urban center.
Here is where leadership supplies what impersonal market 
forces may neglect or where they may go more slowly. The 
genius of leadership is, in the words of George Bernard Shaw, 
“to dream things that never were, and ask, ‘Why not?’ ”
4. Recognizing the Role of the Small 
Entrepreneurial Developer 
Tall buildings, “starchitect” projects, the upper-echelon market. 
It is human nature to focus on the properties that capture the 
glamour of development. It is likely that the headlines and prizes 
will always gravitate to the biggest and brightest new buildings. 
At some point, however, we will probably look back and find 
that problem-solving innovation emerges from the small-scale 
project developer. 
Today’s environment seems to conspire against the small 
developer, with risk-averse capital favoring the most expensive 
locations and lenders timid about advancing project funds lest 
their regulators pounce. As one southeastern developer put it, 
“There aren’t 30-year-old developers anymore because capital 
is too hard to come by.” 
Bigger is not always better. Nimbleness and local knowledge 
are not commodities, and several factors suggest that small  
and midsized developers have an increasingly significant role  
in the industry. 
First of all, consider the structure of the building construction 
industry. In 2015 (the most recent year for which figures are 
available), there were 46,843 firms in the commercial property 
building industry whose employee count was less than 20 per 
firm. That is 86.5 percent of all the firms in the industry. For firms 
focused on the multifamily segment, the numbers are even more 
skewed to small companies, at 91 percent of firms. When it 
comes to total jobs, however, employment is well distributed in 
all establishment sizes up to and including the 100-to-249- 
employee category. That distribution—share of total develop-
ment industry jobs by size of firm—has stayed remarkably 
Exhibit 1-8 Prospects by Investment Category/Strategy, 
2017
2017
2016
2
Poor
4
Good
1
Abysmal
3
Fair
5
Excellent
3.66
3.53
3.48
3.42
3.83
3.82
3.68
3.53
Core investments*
Opportunistic investments
Development
Value-add investments
Source: Emerging Trends in Real Estate surveys.
Note: Based on U.S. respondents only.
9
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
stable since 1990. Bottom line: commercial and multifamily 
building in the United States has a broad and very solid base  
of small and midsized providers. 
These smaller firms are capable of addressing a range of cur-
rent needs: affordability for users across the property types,  
infill in older neighborhoods, and attention to smaller markets  
of lesser interest to the larger firms. 
With construction costs a crucial issue, smaller developers who 
build product on sites outside the core CBD can create new 
offices, stores, and housing less burdened by extreme land 
cost inflation. “Contextual zoning” encourages flexibility of use 
and compatibility with existing neighborhoods, and the small 
developer is likely to be alert to manageable infill opportunities 
with more modest project size, both in the cities and in older 
mixed-use suburbs. 
While money center banks are finding it difficult to add new 
development loans to their books, some of the void is being 
filled by regional and community banks. These are the institu-
tions that smaller developers have long depended upon, banks 
that are experienced in local market conditions and that have 
the capacity to underwrite smaller deals skillfully. As one devel-
oper remarked, “They like the fact that it’s small scale, which 
mitigates the lease absorption risk.”
In Emerging Trends, we often bring our spotlight to the large-
scale trends. But much change is incremental, the sum of many 
contributors whose efforts, taken together, can make a huge 
difference. The enormous number of firms composed of 20, 50, 
and 100 employees provides the industry with an ideal labora-
tory for entrepreneurial innovation. 
5. Labor Scarcity in Construction Costs
The crossover point where more baby boomers are retiring 
than millennials entering the labor force is upon us. A Bureau 
of Labor Statistics (BLS) analysis released in December 2015 
projected labor force change for the ten years ending 2024 as 
being only 0.5 percent per year. Emerging Trends has sketched 
the big picture in previous editions. The key change in the 
population cohorts from 2014 to 2024 looks like this: the number 
of Americans in the 25-to-34-years-old age group, the prime 
early-career working years, will be up by 3.2 million; meanwhile, 
the 65-to-74-years-old age group, those most likely to exit the 
labor force in retirement, will be up by 9.4 million. Between the 
boomers and the millennials, gen Xers are solidly in their mid-
career years, but this is a smaller cohort—another reason the 
labor pool is somewhat shallower. 
The driving factors are age demographics and the labor force 
participation rate, and the two are related. 
Many believe that the labor force participation rate—the per-
centage of the civilian population 16 years or older who are 
working or are actively looking for work—has dropped as one 
of the consequences of the global financial crisis. However, the 
participation rate peaked in 1997 at 67.1 percent and has been 
falling since 2000. As of July 2016, it stood at 62.8 percent. For 
men, the rate has been in steady decline since the late 1940s. 
Female labor force participation peaked at 60.0 percent in 1999 
and has been declining for a decade and a half. Obviously, a lot 
more is happening than just displacement stemming from the 
Great Recession.
Exhibit 1-9 Profile of U.S. Development Firms, by Size  
of Firm and Sector, 2015
500–999 employees
50–249 employees
0–49 employees
500–999 employees
50–249 employees
0–49 employees
500–999 employees
50–249 employees
0–49 employees
Land Subdivision
Residential 
Commercial 
0%
20%
40%
60%
80%
100%
% of total firms in sector
% of total employees in sector
20–49 employees
0–19 employees
Source: U.S. Bureau of Labor Statistics.
10 Emerging Trends in Real Estate® 2017
As more young people seek higher education, they remain out 
of the workforce for a longer period, putting downward pressure 
on labor force figures. As more of the baby boom generation 
moves into the age-65-plus cohort, its participation rate also 
drops. BLS projections call for the overall participation rate to 
dip to 60.9 percent by 2024.
We do not have to wait to feel the effects on real estate. Our 
interviewees are telling us that they feel the pinch right now, and 
they expect it will get tighter over time. A multifamily housing 
specialist says, “Labor availability and shortage will continue 
to have a significant impact on the market. The shortage 
ranges from laborers to more skilled labor. This is pushing up 
the development time on projects and is cutting into returns. 
The shortage of labor has slowed the number of units being 
delivered to markets and may have helped prevent overbuilding 
in 2016.” 
Executives for a firm intermediating offshore wealth into the 
U.S. real estate market note that they see “five-to-seven-month 
construction delays due to labor shortages, while costs are 
inflating.” An institutional investor from the Midwest adds that 
rising costs push apartment development toward luxury units: 
“We can’t afford not to develop apartments at the high end 
due to a run-up in construction hard costs. The run-up in labor 
outpaces construction materials’ costs, though, especially in the 
locations we find attractive, where the land basis has also gone 
up considerably.” 
Exhibit 1-11 U.S. Construction Employment, 1990–2016
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
P
er
so
ns
 (m
ill
io
ns
)
P
er
ce
nt
ag
e 
of
 to
ta
l e
m
pl
oy
m
en
t
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Persons
Jan
2016
Jan
2014
Jan
2012
Jan
2010
Jan
2008
Jan
2006
Jan
2004
Jan
2002
Jan
2000
Jan
1998
Jan
1996
Jan
1994
Jan
1992
Jan
1990
Percent of total employment
Source: U.S. Bureau of Labor Statistics, “Current Employment Statistics.”
Exhibit 1-10 Percentage of U.S. Working-Age Population Participating in Labor Force, 1950–2020
Total
Male
Female
Forecast
30%
40%
50%
60%
70%
80%
90%
Jan
2020
Jan
2015
Jan
2010
Jan
2005
Jan
2000
Jan
1995
Jan
1990
Jan
1985
Jan
1980
Jan
1975
Jan
1970
Jan
1965
Jan
1960
Jan
1955
Jan
1950
P
er
ce
nt
ag
e 
of
 w
or
ki
ng
-a
ge
 p
op
ul
at
io
n 
pa
rt
ic
ip
at
in
g 
in
 la
bo
r f
or
ce
Sources: U.S. Bureau of Labor Statistics, “Current Population Survey”; Moody’s Analytics forecasts.
11
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
ULI district council focus groups convened for Emerging 
Trends® 2017 (see chapter 3) identified labor shortages as 
an issue in markets as diverse as Atlanta, central Florida, 
Cleveland, and Nashville. Large metropolitan areas such as 
Denver, Phoenix, and Orange County, California, have seen 
double-digit construction job gains in the past year, depleting 
the remaining pool of workers.
The causes of the labor shortage are many. One West Coast 
consultant suggested that the clampdown on Mexican immigra-
tion alone reduced the labor pool by several hundred thousand 
construction workers. As development seized up after 2008, 
others pointed out, workers moved to the booming opportunities 
in the oil and gas industries. (Reports from the energy industry 
indicate that workers let go in the oil and gas slump are typically 
migrating to fields like alternative energy, or are enrolling in com-
munity college for retraining.) Skilled craft workers are retiring 
more quickly than they can be replaced. Project managers are 
also in short supply. As of April 2016, there were over 200,000 
unfilled job openings in building construction, according to the 
Bureau of Labor Statistics Job Openings and Labor Turnover 
Survey (JOLTS). 
So we have an “emerging trend” identified in past editions now 
biting business in a painful way. What are the next moves on the 
chess board? 
In a way, this is a real opportunity for the real estate industry 
to lead a way toward solutions. Real estate in all its guises—
construction, property management, brokerage, and even 
finance—offers ample opportunities to create entry-level jobs 
that are not “dead-end jobs,” but the first step on a career path. 
Given the exceptionally high cost of a college degree, many 
young people might opt for a blue-collar occupation in the 
trades if an upward path to greater responsibility and commen-
surately greater income were foreseeable. 
While the first moves might seem counterintuitive to many—
increased public funding for vocational/technical education, 
support for apprenticeship programs that are typically adminis-
tered by labor unions, funding for public infrastructure projects 
that develop entry-level skills—taken together they make a 
starting point for attracting younger workers of all stripes to the 
business. In addition, immigration reform that would encour-
age, not discourage, blue-collar workers is vital. America’s labor 
force needs replenishment at all levels, not just the high-tech 
programmers and software engineers who now get the plum 
H1-B visas almost the day they become available.
6. Housing Affordability: Local 
Governments Step Up
Nowadays, the affordable housing conversation makes a 
distinction between “big-A” and “small-A” affordability. Big-A 
affordability refers to housing for low-income households and 
looks at familiar subsidy programs such as Section 8, the low-
income housing tax credit, and a panoply of state and local 
programs seeking to address 12 million households paying 
more than 50 percent of their income for housing. 
Small-A affordability concerns recognize that, in many markets, 
middle-income households—those in the second to fourth 
quintile nationally, averaging between $31,000 and $87,000 in 
yearly income—are “housing stressed,” spending more than a 
third of their income on housing costs. An August 2016 report 
from the Washington, D.C.–based National Association of Home 
Builders (NAHB) indicated that just 62 percent of all new and 
existing homes sold in the second quarter were “affordable” 
to the median U.S. household. With home prices rising at a 5 
percent annual rate—more than twice as fast as incomes in 
recent years—and apartment rents on pace to grow 4.5 percent 
in 2016, the level of stress will likely increase in the near future.
Housing costs and availability were rated by Emerging Trends 
survey participants as being “considerably important” issues for 
real estate, increasing in importance this year when compared 
with the “moderate importance” given to future home prices and 
affordable/workforce housing in our survey a year ago. 
The related strain on the social fabric is getting high-level atten-
tion. As one longtime CEO of a publicly traded company said, 
“We’re not paying enough attention to affordable housing, and I 
Exhibit 1-12 Age of U.S. Working Population, by Cohort  
and Year
35
37
39
41
43
45
47
49
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
P
er
so
ns
 (m
ill
io
ns
)
55–64
45–54
35–44
25–34
15–24
Forecast
Source: U.S. Census Bureau.
12 Emerging Trends in Real Estate® 2017
don’t mean low-income or government-subsidized. Just regular 
rents. No new buildings are providing that kind of product. Time 
will tell if that’s going to come back to haunt us. Not everybody 
makes $75,000 to $100,000 a year.” 
Affordable housing may be the real estate industry’s vulnerable 
flank on the chessboard. Or it might be a strategic opportunity 
to move creatively toward a large and growing market, with 
incremental profits rather than large windfalls.
Local governments are not waiting on the sidelines; they are 
moving more aggressively than at any time in memory to 
incentivize—or compel—the private sector to meet worsening 
housing affordability needs. A handful are pushing development 
impact fees and even considering rent control. The most widely 
used approach by far, though, is an old idea (dating to the early 
1970s) that has roared back to life: inclusionary zoning. Through 
such zoning, cities require or encourage developers to create 
below-market-rate rental apartments or for-sale homes in 
connection with the local approval of a proposed market-rate 
development project. 
New York City has the nation’s most far-reaching policy. The 
mayoral administrations of Michael Bloomberg (2002–2013) 
and Bill de Blasio (2014–present) have used inclusionary zon-
ing to meet affordability targets, recognizing that the sharply 
upward movement of land prices compromise affordable 
housing feasibility without some form of public incentive. San 
Francisco, another booming economy, passed a ballot initia-
tive to expand its requirements for affordable units in new 
developments from the previous 12 percent to 25 percent of 
the project. However, feasibility studies have suggested an 
18 percent requirement, which is likely to be implemented. 
Proposals to put inclusionary zoning in place or strengthen 
existing policies are advancing in Atlanta, Baltimore, Detroit, 
Los Angeles, Nashville, Pittsburgh, Portland, Seattle, and 
Washington, D.C., among other cities. Recent research by the 
ULI Terwilliger Center for Housing found that the most effective 
inclusionary zoning policies provide developers with flexibility 
and an array of incentives to mitigate the policies’ potential 
negative impacts. 
Redevelopment efforts also are affected by affordability issues. 
Jurisdictions frequently frame their objectives as “creating and 
preserving” affordable housing. Montgomery County, Maryland, 
is trying to develop a program for downtown Bethesda whereby 
Exhibit 1-14 Moderate and Severe Housing Cost Burden on 
Households with Annual Incomes below $50,000
0
10
20
30
40
50
Renters
Owners
All households
2014
2001
Percentage of total households
Source: Joint Center for Housing Studies of Harvard University tabulations of U.S. Census 
Bureau “American Community Survey” data. 
Note: Moderate burden is defined as housing costs of 30 to 50 percent of household income; 
severe burden is housing costs of more than 50 percent of household income. Households 
with zero or negative income are assumed to be severely burdened; renters paying no cash 
rent are assumed to be unburdened. Income cutoffs are adjusted to 2014 dollars by the 
Consumer Price Index for urban consumers for all items.
Exhibit 1-13 Change in Median Existing Home Price vs. Change in Median Household Income
-6%
-3%
0%
3%
6%
9%
12%
15%
Median existing home price
Median household income
2Q
2016
1Q
2016
4Q
2015
3Q
2015
2Q
2015
1Q
2015
4Q
2014
3Q
2014
2Q
2014
1Q
2014
4Q
2013
3Q
2013
2Q
2013
1Q
2013
4Q
2012
3Q
2012
2Q
2012
1Q
2012
4Q
2011
3Q
2011
2Q
2011
1Q
2011
4Q
2010
3Q
2010
2Q
2010
1Q
2010
Y
ea
r-
ov
er
-y
ea
r c
ha
ng
e
Sources: U.S. Census Bureau; National Association of Realtors. 
13
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
The State of the Suburbs: Residential 
Development Opportunities and 
Challenges 
In the coming decades, U.S. suburban housing markets are 
poised to maintain their relevance and predominance. A new 
analytic framework for classifying suburbs reveals significant dif-
ferentiation between cities and suburbs and wide variety among 
different types of suburbs in terms of housing characteristics 
and conditions. These differences could substantially affect 
future residential demand and development in every major mar-
ket in the United States. Key insights include the following:
●
● The United States remains a largely suburban nation. In 
America’s 50 largest (and most urbanized) metropolitan areas, 
suburbs account for 79 percent of the population, 78 percent 
of households, 32 percent of land area, and—despite popular 
and media perception—75 percent of 25- to 35-year-olds.
●
● Suburban growth has driven recent metropolitan 
growth. From 2000 to 2015, suburban areas accounted 
for 91 percent of population growth and 84 percent of 
household growth in the top 50 U.S. metro areas.
●
● The large majority of Americans work in suburbs, 
although job growth has been more balanced recently. 
As of 2014, 67.5 percent of employment in the 50 largest 
metro areas was in the suburbs. Between 2005 and 2010, 
employment in suburban areas remained stagnant with 0 
percent growth, while it increased by 8.2 percent in urban 
areas. But between 2010 and 2014, jobs increased by 9 
percent in suburbs versus 6 percent in urban areas.
●
● American suburbs as a whole are racially and ethnically 
diverse. Fully 76 percent of the minority population in the top 
50 metro areas lives in the suburbs—not much lower than the 
79 percent of the total population in these metro areas.
●
● The variety of types of suburbs creates a wide range 
of development opportunities. The report identifies 
development trends, issues, and innovative product 
examples in five distinct types of suburb within the 50 
largest metro areas: “Established High-End,” “Stable 
Middle-Income,” “Economically Challenged,” “Greenfield 
Lifestyle,” and “Greenfield Value.”
Housing in the Evolving American Suburb, RCLCO and the ULI Terwilliger Center for 
Housing, November 2016.
older apartment buildings could sell excess zoning capacity 
(unused floor/area ratio [FAR]) as “priority sending sites” in 
exchange for committing to retain 30 percent of their units at 
targeted affordability rents. California legislation permits com-
munities to allow higher densities in exchange for meeting 
affordable housing objectives.
Similarly, in cities of lesser density and in older suburbs, plan-
ning officials can work with a new breed of players pursuing 
strategies to maintain or only modestly increase current rent lev-
els in the existing rental housing stock. By making only the most 
necessary improvements and having laser focus on property 
management, these firms deliver 100 percent occupancy and 
competitive current income returns, while helping meet a press-
ing social and economic development need. The strategy is 
especially effective in markets where the spread between Class 
A and Class B/C apartment rents is fairly wide. 
Population increase, upward pressure on land and building 
costs, and persistent wage stagnation challenge government 
and the private sector to devise a menu of solutions. The trend 
to meet that challenge is gathering momentum. This is a “long-
game” conundrum whose immediate difficulties are prompting 
an array of responses now.
7. Gaining Entry beyond the Velvet Rope
Trends do not always go hand in glove with each other; there can 
be cross-currents. When one is dealing with such fundamental 
issues as jobs, housing, and public policies, it is not surprising 
that disparities and disagreements come with the territory. But at 
a time when a number of markets are struggling with a shortage 
of affordable housing, opposition to potential solutions may be 
on the rise. And it may seem that there has rarely been a time 
when divisions have been more in evidence. Politics has brought 
this into sharp relief, but the fault lines were there already. Some 
Emerging Trends interviewees see this as the further progress of 
“NIMBYism,” now often more easily broadcast and perpetuated 
via social media campaigns. But where the “not in my back-
yard” phenomenon largely represented a resistance to specific 
development, it appears that we now must recognize a trend that 
might be called “the velvet rope.” 
At the entrance to fashionable nightclubs or red-carpet opening 
nights, access is controlled through use of velvet ropes on brass 
stanchions. Bouncers let only select individuals gain entry—the 
others have to stand and look in from the outside. Two points 
should be made about this velvet rope in the context of urban 
economies and real estate.
14 Emerging Trends in Real Estate® 2017
The first point has to do with the widening income gap. Just as 
the downtowns of cities “hollowed out” in the second half of the 
last century, so too the middle class has been hollowing out. 
Income inequality is high for cities like New York, Los Angeles, 
and San Francisco. However, the level of inequality is high and 
increasing in other metro areas, including Miami, Charlotte, 
Boston, and Atlanta. For these areas and many others, the  
velvet rope means increasing income segregation. 
Secondly, exclusionary forces are equally alive in suburbs  
and cities. 
Suburbs grapple with their own velvet rope dilemma. Analyses 
of millennials’ preferences have identified density, diversity, 
walkability, and transit accessibility as factors in location choice 
for this 83 million–person demographic cohort. And, as we 
have pointed out in previous editions of Emerging Trends, these 
factors are equally attractive in the suburbs as in the densest 
urban core. The issue is that to create these amenities and keep 
neighborhoods affordable often requires changes to traditional 
suburban development. Yet the increase in demand for land use 
attorneys and consultants by communities resisting change, the 
ease of assembling opposition to planning changes in the era 
of social media, and other forms of opposition to development 
indicate the degree to which some suburbs are flat out resisting 
the very attributes demanded by potential new residents. 
This not only hobbles attempts to restore the residential attrac-
tiveness of suburbs, but also impedes the ability to keep 
neighborhoods affordable. 
In cities themselves, the very characteristic of density magnifies 
the impact of change. Most often, the debate is not between 
what’s good and what’s bad. It is a question of how the new 
connects with the old. The urban velvet rope would freeze time 
in favor of the status quo. Real estate development encounters 
this directly. New building design can ignore neighborhood 
history and context, or it can seek to bring that history forward 
organically while meeting the changes in the city’s makeup. It is 
not only real estate, though. Community organizations can seek 
to keep local demographics static, or can find ways to make 
diversity work in the neighborhood’s favor by discovering the 
vibrancy in multiculturalism—in the food experience, in ethnic 
festivals, in the upward striving that has been the hallmark of 
new, opportunity-seeking residents. Government, business, and 
the not-for-profit sector can go either way: rallying to keep things 
“as they have always been,” or helping shape a future that is 
really continuous with the past, recognizing that cities have 
never been stuck in time, but have always been organisms that 
have grown and prospered by adaptation.
There is, therefore, a significant cultural change that requires 
careful attention. Where “exclusivity” was often seen as a critical 
selling point for communities in the past, it is now being eclipsed 
by “inclusiveness” as a social value. The velvet rope is already 
an anachronism. Communities seeking to retain economic, eth-
nic, racial, or other barriers as a “de facto” matter are engaged 
in a rear-guard action, contrary to their own self-interest.
8. The Connectedness of Cities
There are now more objects than people connected to the 
internet, a phenomenon known as “the internet of things.” Point-
of-sale registers communicate with warehouses. Smart phones 
have apps to search stores for the best prices. Sensors embed-
ded in roadways reroute logistics paths. HVAC systems are 
automatically controlled in real time. 
Known by the shorthand “IoT,” the estimate for internet-con-
nected devices hit 10 billion in 2015 and is projected to more 
than triple to 34 billion by 2020. As always, the relationship 
between advancing technology and the real estate industry is 
a complicated one. But the evidence suggests that a market’s 
trend toward technological advantage is correlated with superior 
real estate performance.
The seven “smartest cities” in the United States are listed as 
Seattle, San Francisco, Boston, New York, D.C., Portland, 
and Chicago in a ranking from Co.Exist, an online publication 
of the magazine Fast Company. Smart cities are defined as 
those gathering data from devices and sensors embedded in 
roadways, power grids, buildings, and other assets. They use 
Exhibit 1-15 U.S. Internet Penetration
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
50
100
150
200
250
300
350
Internet users
2016*
2014
2012
2001
2008
2006
2004
2002
2000
M
ill
io
ns
P
er
ce
nt
ag
e 
of
 p
op
ul
at
io
n
Penetration 
Source: International Telecommunication Union (ITU), World Bank, and United Nations 
Population Division.
*Data for 2015 and 2016 are estimates.
15
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
an integrated communication system to share this information 
instantaneously. Software extracts information and discerns 
relevant patterns for users.
Smart cities match well with the list that Emerging Trends 
identifies as top markets for investment and development (see 
chapter 3). A 2016 Verizon report on IoT highlights tech applica-
tions such as street lighting and parking patterns analysis being 
put in place by cities including San Diego, Jacksonville, and 
Charlotte. Taking another approach, IoT Analytics has praised 
Los Angeles, San Diego, and Denver for innovations ranging 
from wearable devices for health and security to widely distrib-
uted wi-fi accessibility. 
The key link between technological advances and real estate 
investment performance is productivity. IoT can upgrade 
efficiency in several ways. Deploying sensors throughout the 
city helps save time and money by targeting capacity use of 
transportation systems, lighting, overall energy demand, parking 
availability, and even necessary pothole repairs. Moreover, IoT 
infrastructure can help buildings control operating expenses for 
basic services like power, water, and life safety. Density, in the 
form of a concentrated market with limited “last mile” require-
ments, favors 24-hour and 18-hour locations in IoT adoption.
That doesn’t mean that smaller places need be left behind. 
Cities with the highest internet adoption rates correlate with 
advanced educational attainment. The Denver suburb of 
Centennial, for instance, has the highest rate of internet con-
nection of any U.S. municipality, at over 96 percent. Cary, North 
Carolina, in the Research Triangle area, had a similarly high rate. 
Colleges promote high connectivity rates, as seen by top-ten 
scores for College Station, Texas, and Tempe, Arizona. Among 
larger jurisdictions, San Jose, San Diego, and Seattle approach 
the 90 percent mark for household internet use. However, 
Detroit, Hartford, and other cities struggling with poorer urban 
neighborhoods have low technology adoption rates, a digital 
divide that mirrors the income divide for such places.
9. Ready for Augmented Reality?
Who would have thought that a 1990s video game like Pokémon 
would grab headlines, prompting nearly 10 million people to 
get out and search for imaginary video characters in 2016? 
Furthermore, who would have thought that this would set the 
imagination of serious real estate owners and operators afire?
“Augmented reality” (AR) is not a brand-new phenomenon: 
the technology has been available since 2012. AR projects or 
overlays a digital image on the physical world itself. More than 
that, the image can be modified by the instruction of the users. 
Day and night views, for example, can be generated, as well as 
interior or exterior simulations. 
Brokers have been able to use virtual tours for quite some 
time now, but AR brings the quality to a much higher level. 
Prospective purchasers or tenants can customize the experi-
Exhibit 1-17 Venture Capital and Corporate Investment  
in Blockchain
$0
$50
$100
$150
$200
$250
$300
Corporate
Venture capital
2016 YTD
2015
2014
2013
US$ millions
$54.0
$161.5
$298.0
$14.1
$131.0
Source: CBInsights.
Exhibit 1-16 Potential 2025 Revenue from Virtual and 
Augmented Reality ($ billions)
Video games
Health care
Engineering
Live events
Video
entertainment
Real estate
Retail
Military
Education
 $11.6
$5.1
$4.7
 $4.1
$3.2
$2.6
$1.6
$1.4
$0.7
Source:  Goldman Sachs Global Investment Research.
16 Emerging Trends in Real Estate® 2017
ence by visual “what if” alterations. As a marketing tool, it is a 
definite enhancement. 
But what “Pokémon Go” has demonstrated is that AR can 
motivate people to actually get out and visit locations, even 
properties they had not planned in advance to visit. Since 
real estate, both residential and commercial, relies upon the 
consumer experiencing a property—almost always in a site 
visit—before committing to a transaction, stimulating such a  
visit by a technological lure can be extremely powerful. 
Many observers anticipate that AR will meld the “clicks” experi-
ence with the “bricks” of the stores themselves. Customized 
“lures” can bring shoppers to the stores, using smart phones 
with activated Global Positioning System (GPS) technology. If 
retail real estate is trending more and more toward “experience” 
and “entertainment,” AR would seem to be a natural fit. 
Other now-feasible AR applications range from closer collabo-
ration of developers with architects and designers to property 
operation disciplines aimed at reducing error rates. This is very 
much a “big data” technology that will require the develop-
ment of new data centers, well situated in relation to end-user 
markets, together with the storage and infrastructure supports 
needed to sustain the applications.
This is starting now, not in the far-off future. Experts expect $2.6 
billion in real estate applications by the year 2025. The opti-
Rising numbers of female executives, affluent immigrants, 
younger and older workers, and retirees will have a profound 
influence on community building in the United States over the 
next ten years. 
Key trends related to demographics and household formation 
that will affect real estate investment and development through 
2025 are as follows: 
●
● The continued rise of working women: Women now earn 
58 percent of all college degrees in the United States, and 
they earn more than their spouses 38 percent of the time. By 
2025, the number of women in the workforce will rise to 78 
million, 8 million above the level in 2015.
●
● A rising number of affluent immigrants: Immigration 
will account for more than half the U.S. population growth 
by 2025. Contrary to some perceptions, many immigrants 
coming to the United States are highly educated middle- and 
upper-class families with substantial purchasing power. 
●
● The graying of America: By 2025, 66 million Americans will 
be over age 65—which is 38 percent more than in 2015. This 
will create lucrative opportunities for customer segmenta-
tion, given the widely varied needs and lifestyles of younger 
retirees versus older ones.
●
● Young adults driving household formation: 18- to 
27-year-olds will lead the majority of new household growth 
over the next decade, despite forming households more 
slowly than their predecessors. They are expected to create 
14 million households by 2025. 
Grouping the U.S. population by decade born, rather than by 
generation, provides insights into behaviors shaping trends, with 
the most influential (and largest) groups being the following: 
●
●
Innovators, born 1950–1959, who led a technology  
revolution;
●
● Equalers, born 1960–1969, who achieved more equality 
between women and men in the workplace;
●
● Balancers, born 1970–1979, who led a shift toward a better 
work/life balance;
Women, Immigrants, Younger and Older Workers, Retirees: Reshaping Community 
Building for the Next Ten Years
Foreign-Born Share of U.S. Population
0%
5%
10%
15%
20%
2010
2000
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
14%
15%
13%
12%
9%
7%
5% 5%
6%
8%
11%
13%
Source: John Burns Real Estate Consulting LLC calculations of U.S. Census Bureau 
Decennial Census.
17
Emerging Trends in Real Estate® 2017
Chapter 1: Playing for Advantage, Guarding the Flank
mists see unlimited opportunity, of course. Others may worry 
about how AR, as well as the internet of things, will deal with a 
world where cybersecurity is of increasing concern and where 
“security” often is only developed once hackers have exposed 
vulnerabilities in very nasty ways. The probability: accelerating 
change, despite increased risks.
10. Blockchain for 21st-Century Real Estate
If a sense of immediacy about a</p>