What trends and issues will be impacting the real estate and development world in 2016? We asked our readers to share trends that will be affecting the industry from a variety of its sectors, including housing, architecture, office and construction. In addition, we asked them to have a little fun and provide their “way too early” predictions for 10 years in the future. The goal here, as always, is to help give you a peek at some of the trends the region will be grappling with so you can best position your business for success. 

- Chris Conetzkey, editor of the Business Record



Rising rents impact workforce
Construction demand increase
Culture, recreation and place
Millennials impact on office space
Smart homes become smarter
Resale property appreciation
Buyer and seller challenges
Design and generation shift
Rental management automation
Apartment sector tipping point
Creative housing


Housing
Josh Hellyer – Policy and Communications Coordinator, Polk County Housing Trust Fund

Rising rents impact workforce

Trend:
Increased demand for rental units will drive up housing costs, straining the budgets of a growing number of low-wage workers 

Impact: Greater Des Moines is projected to add 266,000 new residents by 2050. With increased population comes increased demand for housing. This is especially true for rental units in walkable urban settings, now preferred by millennials and baby boomers alike. In Central Iowa, low vacancy rates pushed studio rents up 10 percent, and one-bedroom rents by 8 percent, according to CBRE|Hubbell Commercial. Projections also show that seven of our region’s 10 fastest-growing jobs pay less-than-average wages, reflecting our economy’s increasing need for service workers. Many of these workers will find it increasingly difficult to afford housing as rents continue to rise. This is already affecting local families; between 2000 and 2010, our region’s average income rose by 9 percent as average rents rose by 32 percent. 

Over time, cities like Minneapolis, Nashville and Portland have also seen thousands of low-income households forced from their newly popular areas in search of cheaper homes farther away. Unlike these cities, Des Moines has the opportunity to plan ahead and build the housing we need for our future. This will mean changing zoning and subdivision regulations to allow for greater densities and fewer costly design requirements, coordinating with transit agencies to ensure that low-income families can access jobs, schools and services, and finding new resources to lower housing costs.

 

Construction
Ben Bruns – Business Development Director, The Weitz Co.

Construction demand increase

Trend: Construction demand is high and supply is running out, which elevates the importance of relationships.

Impact: Large data center projects have put a stress on the construction labor market. Coupled with high demand in the rest of the market’s customer base, local businesses can end up paying for the short supply of workers. 

This condition can lead to a whole host of challenges for customers, design teams and builders. The resources to serve your project are still out there, but they are becoming much more selective. 

Relationships matter both up and down the supply chain. Having the experienced people you trust at the table is the key to making sure everyone keeps their promises.

Way Too Early Prediction: In 10 years ...The Fourth Industrial Revolution will be a reality here. We are already seeing international competition for knowledge-worker jobs. ... Roles like project management in major corporations are being outsourced to other parts of the world, where highly educated, well-spoken workers cost half what we do. Central Iowa’s talent base needs to continue to develop its skills to differentiate ourselves. Our corporate leaders should have their eyes on this trend as the health of both our companies and our communities will be at stake. Embracing this global trend before it is forced on us is the key to a prosperous and vibrant Central Iowa in the future.

 

Economic Development
Curtis Brown – Director of Economic Development, City of Urbandale

Culture, recreation and place

Trend: More business location and expansion decisions will take into consideration access to culture and recreation and will favorably consider locations with a distinct sense of place.

Impact: More businesses are interested in hearing about the local links to the regional trails network. Businesses and developers are engaged in efforts to beautify and create a sense of place in key corridors. Art and sculpture are defining elements of growing office parks. 

Access to quality-of-life amenities for lunch breaks and after work are an important part of employee retention and recruitment strategies. 

These are all signs that businesses may expect more than simply a suitable building or parcel of land with access to infrastructure for locating or growing key employment centers. 

Cities will respond with continued investment in existing and new trails. Communities will prioritize public art and efforts to create a sense of place in our growing metro area.

Private developers’ efforts will complement public investments to create places and shape a region where businesses confidently invest in distinct areas and support regional amenities that appeal to the priorities and interests of today’s workforce.

Way Too Early Prediction: In 10 years ... Employees will refer to the places where they work not so much by street intersections, but instead will do so by referencing signature buildings, major art installations or the place’s name. People may know the trail route between key destinations as well as they know how to drive between them.

 

Office
Adam Kaduce – Director of Commercial Real Estate, R&R Realty Group

Millennials’ impact on office space

Trend: Office space can be a tool to attract and retain top millennial talent.

Impact: By 2025, millennials (those born between about 1980 and 2004) will account for 75 percent of the workforce, according to the Brookings Institution. Des Moines employers face a very tight employment market, and real estate will be one of their tools to attract and retain top team members. Here are three ways to enhance your office space to attract the next generation.

1. Enhance shared space
– No need to look any further than the success of Uber and Airbnb to recognize that millennials embrace sharing. In our business, we are seeing more and more customers design and create “collaboration cafes” in their space to foster teamwork, group-think and collaboration.

2. Embrace technology
– Millennials embraced technology in elementary school (or earlier) and embrace employers who give them the flexibility to work from the corner coffee shop, their cubicle or the shared workspaces. Successful employers will connect their office space with high-speed wireless technology that allows team members to work seamlessly from any environment.

3. Implement flexibility – To attract millennials, implementing flexibility will set organizations apart. Some millennials prefer early morning work, while others prefer to work in the evenings; office space should allow round-the-clock access to space and data. We are seeing clients implement workstation hoteling and shared cubes to maximize flexible work schedules and real estate costs.

 

Housing
William McCaughey – CEO, Home Energy and Maintenance LLC

Smart homes become smarter

Trend: Smart home devices will lower homeowner energy, operating and maintenance costs, and improve the ability to age in place.

Impact: The Internet of Things means connected devices can sense aspects of the real world, like temperature, lighting, the presence or absence of people or objects, and then report that real-world data to people and other devices -- or even act on it.  Instead of most data on the Internet being produced and consumed by people, more and more information will be produced and consumed by machines communicating between themselves.

In 2003, there were 6.3 billion humans on the earth and about 500 million devices connected to the Internet. By 2020, the number of connected devices is expected to be about 6.5 times the number of humans. Today there are 80 things connecting to the Internet for the first time every second. By 2020, that number will be 250. Gartner Inc., a leading information technology research and advisory company, predicts the average home will have 500 smart devices by 2022.

In the smart home, smart devices will lower energy costs by monitoring the large energy consumers for efficiency and alert homeowners to schedule maintenance. Insurance premiums may decrease if the home has water and heat sensors to alert the homeowner to potential damage. Smart devices will also provide a safety network allowing older adults to live in their home on their own.

Way Too Early Prediction: In 10 years ... Smart home devices will be making decisions on their own based on the homeowner’s previously developed profile. Homeowners may wake up and read a message on their smartphone that their car has a flat tire and that a service truck will be in their driveway at 7 a.m. to repair it.

 

Housing
Kurt Schade – Broker Associate, Coldwell Banker Mid-America Group Realtors

Resale property appreciation

Trend: A number of factors, including generational trends, construction costs and the economic climate, are leading to an appreciation of resale properties.

Impact: The real estate environment, as we know it, is one of evolution affected by tax laws, performance of other investment sectors and long-term reputation of “pride of ownership.” Currently, a combination of low interest rates, a trend that may be about to change; tax benefits; and “potential” appreciation are fueling property values.

We seldom experience double-digit appreciation or devaluation of properties in Iowa. However, whereas history supports this theory, what some don’t understand is the “seasonal” effect, which is greatly impacted by the active pool of buyers. 

Off-the-chart lot pricing fueled by developers paying record prices for undeveloped ground (a trend we said we’d never see after 2008-2010), requirements of builders to meet or exceed building energy efficiency codes and the romance by millennials of buying a home that no one has lived in before have fueled new construction sales and costs to record levels.

All of this contributes to appreciation of resale properties. We are currently seeing, in many cases, value increases in excess of 5-7 percent over just a few months ago and in some cases multiple offers with properties selling for well above list price. 

We anticipate that trend to continue well into the summer months. Then, as the pool of buyers decreases in the fall and winter months, we typically experience a small correction of the appreciation. That often lends to the support of our “typical” 4-6 percent annual appreciation of property values on an annualized basis.

 

Housing
Les Sulgrove – Broker, VIA Group Realtors

Buyer and seller challenges

Trend: High buyer demand and low seller inventory will again heat up the real estate market in 2016.

Impact: Listing inventory has been on the decline since the real estate bubble burst in 2008. For seven straight years, the number of homes for sale has consistently fallen, and we are hovering around 3,000 homes currently for sale. During the same period, the number of pending transactions has risen and total sales have continued to increase every year since 2010, with 2015 being one of the busiest years in recent memory, recording almost 13,000 transactions.

Buyers and sellers in 2016 will see higher prices, potential appraisal value issues and multiple offers. To have the best opportunity as a home seller this year, have your home inspected prior to going on the market, be flexible and cooperative for showing requests and consider selling your home without the contingency of finding the next one. 

As long as no outside factors come into play, such as another housing bubble or an economic recession, 2016 should be very similar to 2015. Inventory levels are at record lows, and buyers came out sooner this year due to a mild winter.

Way Too Early Prediction: In 10 years ... The desire to achieve the American dream of homeownership will increase as millennial buyers continue to enter the market. Homes will be smaller and more maintenance-free with emphasis on community resources and activities. Home prices will continue to rise, outpacing other types of investments.

 

Architecture
Mike Bechtel – Architect, INVISION Architecture

Design and generation shift

Trend: Look to residential trends when thinking about redesigning your workplace.

Impact:
Whether by necessity or by choice, millennials are putting off large purchases and marriage. With heavy debt and no car, they need to live closer to work. With a vacancy rate that’s 2 percent lower than the U.S. average, Des Moines has seen downtown rentals consistently filled to capacity for years now. And as developers race for their slice of the trend, multifamily housing projects have been cropping up at a faster rate. In an effort to differentiate themselves, each apartment development has been integrating various amenities to lure renters their way. 

The specific apartment amenities have changed and will continue to evolve, with the latest trend focused on small-group, unique experiences – think of a space outfitted so you can have a private chef teach cooking techniques to you and five friends in the communal kitchen, in lieu of the tired and typical clubhouse or party room. 

When it comes to the office, one trend on the rise is providing flexible work zones. Variety in work styles allows staff members to customize their environment.

Office environments that build in work-style variety also support cross-generational knowledge sharing in both informal areas, like break rooms and “water cooler talks,” and formal training areas and conference rooms. 

Way Too Early Prediction:
 In 10 years ... Just like in the multifamily housing sector, business owners should value flexible design that offers building vitality. Develop and find spaces with adaptable structure and infrastructure that allows your business to easily and quickly roll with the punches.

 

Housing
Deanna Bennett – CEO, RentMonitor

Rental management automation

Trend: As software tools become more accessible, smaller landlords, real estate investors and property management companies will be able to increase their efficiency.

Impact: Landlords will continue to looks for ways to increase their returns, and utilizing software to automate routine operations is an efficient way to do that. 

In the past, software was only available at a high cost and on long-term contracts, meaning only large property management companies, developers and real estate investors could benefit. However, as startups and service companies have entered the market, on-demand products are now widely available at a much lower cost.

Services such as property management software, tenant screenings, tenant communications and online rent payments can now be used on a month-to-month basis and often on a per-use basis as well. This means that all landlords, regardless of their portfolio size, can benefit from these automation services. 

Utilizing software systems increases efficiency, allowing for more time to find additional real estate deals and grow their business. The move toward online systems is also well-received by tenants, who enjoy being able to pay rent and communicate with their landlords at any time from anywhere using their mobile devices.

Way Too Early Prediction: In 10 years ... Mobile technology will dominate property management software. Tenants will demand options to communicate online and through text messages. Paper checks will no longer exist and all payments will be made online, via mobile devices or with credit/debit cards. Cash will only be accepted in rare cases.

 

Market Research
Tyler Brady – Account Executive, CoStar Group

Apartment sector tipping point

Trend: Will the continued market supply of apartments meet demand?

Impact: Apartment vacancies in Des Moines rose in the last year as supply was delivered in response to healthy market conditions, strong economic growth and healthy fundamentals. In fact, developers added more than 2,200 units in 2015, representing a post-recession high.  

Net absorption was still strong, considering 4,000 units have been delivered since the beginning of 2012. Additional supply of more than 1,600 units could be added in 2016 if all deliveries stay on schedule. 

Where is the multifamily tipping point, considering that transaction volume was down and selling prices in the Des Moines area did not increase as much as they did nationally?

Way Too Early Prediction: In 10 years ... Developers may need to be more strategic in regard to projects they choose to develop with a more comprehensive strategy or particular asset class expertise for the Des Moines market as the market continues to draw outside investment.

 

Housing
Kris Saddoris– Vice President of Development, Hubbell Realty Co.

Creative housing

Trend: Creative housing is a vital component for the Des Moines metro area as it competes nationally to gain population and corporate growth.

Impact: As cities evolve into “live and play” spaces and strive to create a vibrant, connected environment to attract industry and the best and brightest people, the role of housing continues to be a vital component to success. 

Creative housing has become as much of a fundamental infrastructure requirement as walkable streets, public green spaces and transit options. It is clear that the built environment has a significant impact on health and well-being; however, the evolution of the growing importance of “place” for potential employee/industry prospects is critical to understand.

Housing choices and characteristics are changing quickly today. Homeownership is at its lowest level nationally in 30 years, and yet, in the Des Moines market, home sales were at a new high in 2015. At the same time, the rental market continues to be very strong, with two times more growth in boomer renter households currently than millennial renter households.  

With both home sales and rentals thriving, the key point to make is that people today are drawn to a sense of place. Our housing options must provide a sense of belonging and support for the built environment. Rental housing options continue to grow in popularity, but it’s important that developments provide a clear sense of unique identity as well as character.

As important as sense of place, is to understand the delicate balance that we are approaching as construction costs outpace rental rate growth levels, which are well ahead of wage growth.  Creative, vibrant housing developments must be financially successful to continue to play a strong long-term role in the creation of a flourishing city environment. 

Way Too Early Prediction: In 10 years ... We will continue to value the  importance of a sense of place for vibrant economic growth. Widespread housing options – both in affordability and character – will be critical to sustained success. It is clear that vibrancy cannot be continual without diversity, both social and economic. Understanding the role of both will be important for businesses to recognize.