ULI AND PWC RELEASE ANNUAL EMERGING TRENDS IN REAL ESTATE^® 2024; LEADERS EXPLORED WHAT PAST ECONOMIC CYCLES CAN TELL US ABOUT OUR CURRENT ECONOMIC ENVIRONMENT AT ULI’S ANNUAL REAL ESTATE FORECAST

500 real estate and land use leaders convened at the 24^th Annual ULI Philadelphia Real Estate Forecast: Navigating Economic Cycles Today, Planning for Tomorrow

On November 14^th, ULI members and industry professionals met to explore the region’s outlook on investment, development trends, capital markets, property sectors, infrastructure investment and other real estate issues while examining how Philadelphia is positioned among national trends detailed in the Emerging Trends in Real Estate® 2024 report released by ULI and PwC this October.

Key local leaders from multiple sectors examined cyclical patterns of the region’s local real estate market, discussing valuable lessons learned adapting to uncertain market dynamics. Additionally, market leaders explored how cities and metro areas are managing revenue losses resulting from office vacancies as well as the impact and deployment of federal investments in regional infrastructure.

Jeremy Sunkett, Chair of ULI Philadelphia and Vice President of Real Estate Services for MRA Group, opened the event by introducing a local panel of experts, moderated by Vaughn Ross, Founder of Rvesta Consulting, that provided observations on how housing markets and infrastructure investments are affecting the region’s competitive future. Panelists included: Becky Bradley, Executive Director, Lehigh Valley Planning Commission; Jody Holton, AICP, Chief Planning & Strategy Officer, SEPTA; Sam Katz, Documentary Producer, History Making Productions; and Frank Robinson, Vice President, Econsult Solutions, Inc.

Robinson discussed key factors to consider as we continue to shift towards permanency in work from home arrangements, “Working from home has positive and adverse effects. If you’re living in counties with main streets, you’re seeing more activity in downtown areas. Access, infrastructure, and culture are things people want to be involved in, so we have to think of more programming that will continue to bring people back.”

Some of that programming looks like improvements to existing infrastructure. SEPTA recently implemented tap-to-pay features for bus, trolley, and train fares, upgrading their electronic fare collection system. Holton noted that while ridership is not 100% at pre-pandemic rates, SEPTA is committed to being valuable to the community by investing in new regional rail vehicles to deliver more frequent service throughout the day and SEPTA’s first redesign of its entire bus network, Bus Revolution.

Following the first panel discussion, Bill Staffieri, Partner at PWC, presented key findings of the Emerging Trends in Real Estate ® 2024 report, discussing concerns around interest rates, availability of debt and the cost of capital. Many report participants talked about a recession on the horizon, but trends are showing we are likely expecting more of a “soft landing with a longer slower path.”

The Emerging Trends report highlighted, “As the contours of a new era in real estate become increasingly clear, one overarching theme to emerge is one we’re calling ‘The Great Reset.’ The past is no longer prologue; old assumptions—about market dynamics, pricing, and risks—must be visited.”

Trends highlighted in the report include the following:

• Higher and Slower for Longer: Almost 18 months since economists started predicting a recession, there are scant signs that a downturn is imminent, and many forecasters have dialed back their recession probabilities. The emerging consensus is that the economy is headed for a “soft landing” or a “growth recession” with slow economic growth and at least moderate job growth, but with risks weighted firmly to the downside.
• The Great Reset: The Fed spoiled CRE’s long run of historically strong performance with the first of 11 rate hikes in March 2022, and markets are not expected to return to their former glory anytime soon. The office sector has an outsized impact on the perceived risks and opportunities in commercial real estate, but fundamentals in most sectors are still generally strong, and distress is low.
• Downtowns Need to Reinvent Themselves – Again: Urban economists and city leaders are debating the future of downtowns if the future involves significantly fewer occupied office buildings. Pessimists fear an “urban doom loop” while optimists counter that cities will adapt to the new adversities as they always have managed to in the past. Downtowns face more live/work/play alternative communities in their suburbs, smaller cities, and even their own city neighborhoods that will compete for their economic vitality.
• Eco-Anxiety Comes Home: As heat records continue to break, the number of billion-dollar climate events is rising sharply, posing increased costs and risks to owners and operating challenges for managers. Insurance historically has been only a minor concern for commercial property owners, but rising insurance costs and declining availability is forcing the industry to rethink the approach to insuring assets against growing climate risks. Property owners and managers are getting caught in the middle of culture wars and fiduciary duty, as some people decry environmental, social, and governance (ESG) efforts that government regulations and investor mandates require.

The event concluded with a final panel discussion with Liberty Property Trust alumni, drawing on the current economic environment and past disruptions in the real estate market moderated by Ayotunde Ogunbiyi, Principal at Ally Management Partners. Panelists included: Brian Berson, President, Parkway Commercial Properties; Cat Bianco, Managing Director, Tactix Real Estate Advisors; Brian Cohen, Managing Director, Ensemble Investments, Inc.; and Anne Cummins, Chief Operating Officer, Gattuso Development Partners.

Flexible design planning for new development was examined as redevelopment projects continue to evolve post pandemic. “The best risk mitigation strategy is to design a building that is the best in its class. That it’s highly valued [and] appreciated, that people want to go in and be there…you also, at the same time, are looking at things to make that the most flexible kind of building within that type” noted Cummins.

Networking, in person professional engagement and the importance of team building were consistent topics in the conversation, underscoring the need for spaces conducive to collaboration with increasing hybrid schedule popularity. Bianco added, “We need to be really thinking about how we improve the spontaneity of our interactions when we are meeting [in office] because that’s really where the magic happens. People are looking at how their offices are being used…creating those places for that to happen is going to be of the upmost importance.”