CHICAGO—The Urban Land Institute and PwC have just released the 35th edition of Emerging Trends in Real Estate, a joint publication based on interviews and surveys they did with over 1,000 professionals. And the general feeling is that what had been a modest recovery will gain momentum in 2014.

“People were starting to talk about development again, and we hadn't heard that in years,” said Steven Blank of ULI. For several years, much activity has been driven by a compression in cap rates, but in 2014, interviewees expect property enhancements to be one of the big drivers. “The industry is getting itself on a solid footing financially,” Blank explained, but “we're going to have to get our fingernails dirty if we want to make money.”

Ever since 2009, the economy has healed at a modest pace, with job growth that, while consistent, was hampered by a depressed housing market and sometimes barely kept pace with population growth. Therefore, most positive signs of growth in real estate could never quite dispel the lingering uneasiness. “The difference for 2014,” according to the new survey, “is that the market has progressed further through the economic and real estate cycles and we are now seeing real evidence that the trends have the momentum to finally make an impact on the real estate market.” In short, this might be the year the markets “recover from the recovery.”

It's no surprise that many of the healthiest real estate markets studied, including Austin, Houston, Dallas/Fort Worth and New York City, have also had solid job recoveries. And by the end of next year, the researchers predict that employment levels in half of the 50 markets in the survey will return to pre-recession peaks. By 2016, they also predict that only a handful will remain below peak employment. Considering “the limited amount of new supply that has been delivered during the recovery, it is easy to see why the outlook for real estate fundamentals is positive.”

But with a rising economy come rising interest rates, and interviewees and survey respondents generally agree that rates will increase in 2014. “It's not a surprise that jobs and interest rates are the number one and number two issues on people's minds for 2014,” said Blank. But even though this feeling has caused some anxiety, most believe an orderly rise in interest rates, that is, escalations linked to an improving economy, won't have much of an impact since “the increased borrowing cost will be offset by greater demand and thus higher rents.”

Instant Insights /

ULI: Recovery Will Gain Momentum in 2014

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