Each year, the Urban Land Institute and PricewaterhouseCoopers publishes their joint Emerging Trends in Real Estate® report. Drawing from interviews with hundreds of real estate experts, investors, and developers, the annual report predicts market trends that will shape the real estate sector in the coming year.
While many readers rely on this report for guidance on how, when, and where to invest, these real estate trends also impact the way we design our spaces and, consequently, the way we live our lives. We approached the report from this perspective—what do these changes in the real estate market mean for designers and architects? How can those of us who are interested in positively impacting lives through design respond to, and prepare for, these trends?
To begin to answer this question, we’ll explore four of the report’s six trends and their implications on design.
Trend #1: Increased Urbanization
Urbanization is actually the combination of two trends: More people moving into traditionally urban areas (like Downtown DC, for example) and traditionally suburban areas trying to create a more “urban” lifestyle. As urbanization continues, neighborhoods of all kinds are seeing a higher demand for restaurants, nightlife, supermarkets, shopping, condos and rentals. Walkability is becoming increasingly more important, as is lighting and safety. Architects and developers need to plan on providing more parking while maintaining an urban atmosphere.
Trend #2: Interest Rates on the Rise
If interest rates rise as expected, experts anticipate the secondary and tertiary markets will become more attractive to investors, meaning niche sectors like student and senior housing could get a bump. In turn, design for the “bookends” of the market—Millennials and Baby Boomers, the two largest age cohorts—will continue to shape the real estate market and design considerations. Smaller rental units for singles in both groups will continue to be in demand. In addition, Millennials have a long list of expectations for their amenities, including laundry facilities, gyms, roof top terraces, pools, and walkability to restaurants and grocery stores. Designers and architects are considering these needs in the design process. On the other hand, Baby Boomers are continuing to age and retire, potentially wanting to move into smaller spaces or relocate to urban centers with easy access to parks, grocery stores, theaters, etc. Designers and architects are faced with the challenge of creating spaces for both age groups.
Trend #4: Continued Stress on Retail
According to the report, for the first time ever, online purchases surpassed in-store purchases during the 2015 Thanksgiving shopping weekend. With home delivery as simple as clicking a few buttons, people just aren’t finding the time to browse and buy at brick-and-mortar stores the way they used to. The overhead associated with leasing retail space in desirable areas is simply too much for many retailers today.
Some analysts predict retailers might shift to a “showroom” storefront to allow them a smaller physical footprint, while they house their inventory elsewhere and fulfill orders online. In this event, the challenge for architects and designers will be to create compelling small-scale retail spaces people still like spending time in. The fact that Amazon opened its first physical store in Seattle points to the notion that consumers still want to engage in person with their favorite brands.
Trend #5: Limited Additions to Supply
Although there is continued demand for urbanization and housing in general as employment numbers increase, the residential mortgage crisis that fueled the Great Recession left banks gun-shy about funding new construction. This will impact architects and designers because conceptual project design will need to be unique enough to convince banks of a project’s marketability and viability. And, because fewer projects will get funded, the competition for these projects will continue to be steep, requiring the best thinking from every firm.
The great news for everyone is that the indicators are overwhelming positive, and the report was very optimistic about the health of the real estate industry over the next two years. There will be design implications for all these trends, but they can be managed with proper planning, creative designs, and the right design team.