Flexibility, convenience and ultimately real estate’s resilience all are factors that can drive property sector function over the next decade. That’s among the key takeaways from the latest PwC US/Urban Land Institute Emerging Trends report. “Consumer expectations of traditionally designed spaces have changed, and there will likely be a massive shift in the functionality of homes, offices, shopping centers and healthcare spaces,” says the report.  

Another important finding is that commercial real estate investors have grown more comfortable with being uncomfortable. The PwC/ULI reports say that while property markets that were once predictable will likely remain in “a bubble of uncertainty,”  decision-making confidence has improved since last year. Three-quarters of respondents in the 2022 survey report feeling confident making those same long-term strategic decisions compared to less than half in the 2021 survey. 

Property investment is top of mind for institutional investors in both traditional and alternative sectors as risk remains low and rates continue to be attractive. Urban landscapes are facing change, as new land uses and updated zoning allow markets to evolve. All of this is under the cloud of climate urgency, prompting new ways of standardizing and measuring ESG requirements.  

As businesses approach environmental, social and governance (ESG) issues in the property sector, it will be imperative to take a holistic approach and establish a strong overall strategy to help create sustainable advantage and value, the report says. 

“There is clearly an optimism within the real estate industry for its prospects in 2022 and there is undeniably a weight of capital available for investment,” said Anita Kramer, SVP of ULI’s Center for Real Estate Economics and Capital Markets. “Yet the ground is shifting and we are seeing long-term and lasting changes in a range of key areas including the relative prospects for property sectors and locations, the extent to which we use various property types, and our attitudes toward the industry’s role in climate risk and decarbonization.  

“Emerging from this is the opportunity to lay the foundation for a new vision for our communities, one in which we repurpose obsolete buildings, reduce carbon emissions, and create more affordable housing,” she continued. 

REITs and private investors have been relatively early to the party for a broader variety of “alternative” sectors, ranging from niche housing types (student and senior housing) to specialized offices (life science and medical buildings) and warehouses (data centers and cold storage). These sectors are now gaining interest from a wider range of investors because they generally offer higher returns at lower prices, often at limited risk.  

“Tenant demand in many of these alternative sectors is driven more by economic growth, making them less volatile over the business cycle,” according to PwC/ULI. “However, downtown office buildings and regional malls have long been the dominant sectors for institutional investors and still account for almost a third of the value in the NCREIF Property Index.” 

Pictured: Nashville Yards in Nashville. The Music City is rated the top U.S. property market currently in the PwC/ULI report.