After a couple years of lackluster recovery from the housing crash, Real Estate markets are finally starting to show signs that improvement, or at least changes, may be just over the horizon. According to the Report on Emerging Real Estate Trends in 2014, recently released by the Urban Land Institute, demand for Real Estate will be driven this year by continued economic growth after the relative stability of 2013.
“All was sort of right with the world,” said Stephen Blank, Senior Fellow of Finance at the Urban Land Institute, describing the 2013 Real Estate market. “I think what we saw last year was a reaffirmation of the staying power of a certain number of global cities in the U.S.”
Aside from Miami shooting into the ranks of the top 10 Real Estate prospects for 2014, there wasn’t much significant movement in the top tier. Despite fears that the market is at a tipping point, San Francisco topped the market for a second year in a row thanks to the growth of its single-family market.
“If anything drove the difference in the rankings from last year overall, it was probably the markets that were recovering the single-family markets fastest,” Blank said.
Core markets like Miami and Orange County experienced strong overall housing growth — an indicator that the effects of the housing crash are diminishing. Blank said that construction was unusually muted this year, which helped prevent the pace of recovery from slowing down through over-construction.
The report noted that the rapid recovery in cities like Sacramento, Las Vegas, Atlanta, and Salt Lake City is attracting investors to markets previously seen as more regional. Oklahoma City and Northern New Jersey took two of the worst tumbles this year. But the report singled out Washington D.C for the most spectacular decline, plummeting 14 spots to rank 22 on this year’s list. Like San Diego, the possibility of more federal austerity is dampening investor enthusiasm for the D.C. Real Estate market.
Several core cities also slid down the ranks this year, including D.C., New York City, Austin, and Boston. Blank said the decline in core cities like Boston has less to do with the performance of markets than the positive rate of recovery happening in secondary and tertiary markets.
“Now I would argue that Boston didn’t really go down—the water around them went up. Boston didn’t have as much recovering to do, so people were making a big recovery jump just looked better.”
Blank said more secondary cities are cultivating the conditions that allowed markets like Austin, Texas to suddenly skyrocket to the top tier.
“They combine the education, medicine, the technology, the government, some energy, and a young population,” Blank said. “You put together those five or six factors and you’re able to declare victory in the war for investment dollars.”
Blank called Minneapolis the poster child of the recovering markets. The Twin Cities cracked the top 20 this year, which Blank interprets as a sign that investors in 2014 will be keeping their eyes peeled for alternative investments to the core market.
“You have to start looking at secondary and tertiary markets that you haven’t heard of if you want to find an investment,” Blank said. “It’s hard to find the pricey stuff, the core stuff, for the average person. It’s hard if you’re an institution with an ultra-long investment array, but the average investor wants gratification at least a little bit faster.”
The report also noted that Generation Y is one of the most important demographics that will be affecting Real Estate markets in 2014. Predominantly young and urban, Millennials are most attracted to “walkable” cities like San Francisco, Denver and Portland where it’s easy to go from home to work to recreation without relying on a car.
“They seem to be attracted to this much more integrated environment where the entertainment, the gym, the school for the kids, the job where they work, they are all in much closer proximity,” Blank said.
How this will affect development remains to be seen, but Blank suggested that as cities start catering more and more to Millennials, suburban work campuses may be redeveloped into apartments and offices to create this synthesized environment.