AUSTIN, Texas – October 27, 2022 – The Urban Land Institute (ULI), an education, research and resource organization focused on shaping the future of the built environment for transformative impact in communities worldwide, has released its annual Emerging Trends in Real Estate® 2023 forecast, and Austin finds itself once again near the top of the list with a No. 4 position in the ranking of national markets to watch. This is the same ranking Austin achieved in the 2022 prospectus.

This year’s rankings are strongly associated with the national economic outlook, with interest rates rising, economic clouds darkening and real estate deal flows sinking because buyers and sellers cannot agree on pricing. But for all that, most commercial real estate professionals interviewed remain reasonably upbeat about longer-term prospects. There certainly are some troubling risks ahead for the industry, but the consensus mood seems to be one of cautious optimism that the industry will ride out any near-term slump and be well positioned for another period of sustained growth and strong returns.

Since 2010, Austin has ranked seventh or higher in each Emerging Trends in Real Estate® report. The capital city also placed No. 4 in the 2022 forecast, No. 2 in the 2021 forecasts and No. 1 in the 2020 forecast. Dallas-Fort Worth was the only other Texas city to earn a spot in the Top 10 Markets list, coming in at No. 2, with San Antonio landing at No. 12 and Houston at No. 14.

To view the full report, visit: https://knowledge.uli.org/en/reports/emerging-trends/2023/emerging-trends-in-real-estate-united-states-and-canada-2023.

ULI Austin will host an Emerging Trends in Real Estate event on Thur., Dec. 1, with timing and location details to be announced later. Guests will hear national evaluation and insights from one of the report’s co-authors, after which a local panel will provide a unique perspective on the high-level results.

Austin maintained its place in the “supernova” category, having exploded in prominence over the past decade or so. It and the four other metro areas in this grouping – Nashville, Raleigh/Durham, Jacksonville and Boise – are smaller markets with 1 million to 2 million residents, but their defining attribute is tremendous and sustained population and job growth well above national averages. And despite their size, they have above-average levels of economic diversity and white-collar employment, which explains their strong investor appeal and should help them sustain high growth in the years ahead.

However, the glow for Austin and the other supernovas has faded somewhat as their unfettered growth has invited some big-city problems like congestion and rising living costs. These cities appear to be suffering some growing pains, with housing construction not keeping pace with household growth, thus strain­ing housing affordability, which has previously been one of the chief attractions.

One of the noteworthy topics from the report is the importance of inclusive and equitable growth, and the emergence of impact inventing within institutional real estate. In recent years, institutional investors and corporations have announced billions of dollars’ worth of capital commitments targeted at addressing socioeconomic inequity, particularly with respect to bridging the racial wealth gap. At the same time, there are very few announcements detailing if and how those commitments have been met. It appears that many of these corporations and investors are struggling with how, where, and with whom to deploy that capital; industry leaders have not yet coalesced around solutions to address inequity that are innovative, replicable, and scalable. It is now equally critical, however, that new capital deployment strategies be developed to support much more than simple sufficiency; they need to be tailored toward more equitable societal outcomes and the economic mobility that is required to achieve them. Scalable solutions must be created that allow more people to thrive, not just survive.

Ten other top trends from the report include:

1. Normalizing: Defying just about every prediction voiced during the terrifying and uncertain days of the COVID lockdown that began in March 2020, U.S. commercial property markets actually embarked on a remarkable run, with some of the strongest returns, rent growth, and price appreciation rates ever recorded. There isn’t a “normal” anymore, as normal is being redefined.
2. …Still, We’ve Changed Some: Even as property markets begin to “normalize” in many ways after some of the disruptions of the past few years, we won’t be resum­ing our former lives in some key respects. The pandemic forced structural shifts in how and where we live, work, and recreate in ways that seem destinated to endure at least at some level, even if less extreme than our behaviors during the peak of COVID.
3. Capital Moving to the Sidelines – or to Other Assets: Discussions with numerous participants from all corners of the industry confirm that many investors have moved to the sidelines – or to other types of assets like equities and bonds. Indeed, the recent surge may well reflect a last gasp to get deals done before the expected increase in interest rates.
4. Too Much for Too Many: Housing is too expensive. It has been that way for too long – for too many people neither for-sale nor rental housing is afford­able – but prices and rents have soared even further out of reach over the course of the past year. And even if we experi­ence an economic downturn, as many economists expect, it is not projected to provide significant relief.
5. Give Me Quality, Give Me Niche: Investment demand for commercial real estate assets is still healthy, if more tentative, but real estate capital markets are also becoming more bifurcated between the favored and the scorned as investors, lenders, and developers turn more selective than they have been in recent years.
6. Finding a Higher Purpose: We have too much retail space and too many office build­ings, and not enough residential units or modern industrial space. That is the inescapable conclusion from our many discussions with leaders across the industry, as summa­rized in the preceding pages. There also is not enough developable land on which to build all the housing and ware­houses where needed.
7. Rewards – and Growing Pains – in the Sun Belt: Everyone still likes the hot Sun Belt markets, but another year of hypergrowth has brought growing pains and has slightly dimmed the outlook for some star markets. All this growth is bringing big-city problems to some smaller, vibrant markets. Such problems include those that affect the quality of life (like congestion) and standard of living (like declining housing affordability).
8. Smart, Fairer Cities Through Infrastructure Spending: Infrastructure spending is back among the top trends in Emerging Trends, but this time on a more hopeful note. New federal infrastructure spending provides the opportu­nity to replace and expand critical urban infrastructure to rebuild cities and spur new development—and address historical inequities.
9. Climate Change’s Growing Impact on Real Estate: The earth is getting hotter. Climate change may alter the dynamics of where we want to live. The hottest metro areas may soon face declining demand – and potentially an exodus – due to unbearable weather, even as households continue to migrate from colder climates to warmer metro areas overall.
10. Action Through Regulation: Preceding trends highlighted several areas where private markets have been slow to fix mounting problems that the property sector has played a central role in creating, notably climate change and housing affordability. Industry groups are calling for collective voluntary action, which is a start. But, if the growing number of regulations being considered at the federal, state, and local levels is any indication, governments are getting impatient about the limited progress.

Now in its 44^th year, Emerging Trends in Real Estate®, undertaken jointly by PwC and ULI, is one of the most highly regarded annual industry outlooks for the real estate and land use industry. It includes 617 personal interviews and 1,450 survey responses from leading real estate experts, including property owners, real estate advisors, investors, lenders, homebuilders, developers, REITs and consultants.

About ULI Austin:

The Austin District Council of the Urban Land Institute was founded in 1994. Today, the Austin District Council includes more than 1,000 Austin-area professionals in the planning, architecture, design, engineering, investor, landscape, lender, legal, construction, communication and government industries, involved in every sector of real estate development, from residential and retail to commercial and hospitality. ULI Austin is known for its topical monthly breakfasts, which feature local and international experts on topics important to the community’s growth and prosperity. For more information, visit Austin.ULI.org.