Real estate executives polled for the Urban Land Institute's annual real estate report expect the current cycle will be longer than in the past and, unlike past cycles, will not end in a bust, according to the 39th Emerging Trends in Real Estate report released Thursday by the ULI and PricewaterhouseCoopers.
Things are different this time around, said Mitch Roschelle, partner, PricewaterhouseCoopers, explaining the report during a session Thursday at the ULI's Fall Meeting in Los Angeles.
This is the first time survey respondents expressed the idea that this will be a long cycle, Mr. Roschelle said. "They stopped looking at what could go wrong next year," he explained.
The cycle could last another five years, he said.
"The current (economic) expansion is slow by comparison (to previous ones), but it is more sustainable," Mr. Roschelle said. "We're at a point that there is nothing pushing us toward a correction."
The report noted that with gross domestic product growth averaging just 2.1% annually, the U.S. economy "is hardly a boom" that would trigger a compensating bust. What's more, the continuation of low interest rates minimizes the risk of a major price correction and is "another soft landing vote," the report states.
Real estate investment is becoming more transparent and more people are investing in the asset class, he said.
"It feels like capital will continue to flow into the asset class and not flow out, which would cause a correction," Mr. Roschelle said.
However, there are risks in the economy, the report notes.
"The three-decade-long exacerbation of income inequality, wage stagnation and regional economic disparities threatens the breadth of the demand drivers across the economy, and for real estate as well," the report states.
Survey respondents indicated that the most important issues for real estate are job and income growth; availability of qualified labor, including construction workers; and land and construction costs.
"For the first five years of the recovery, it upset me that we weren't seeing faster growth. Then I thought, 'stop that'," said Mary Ludgin, director of global investment research at Heitman, Chicago, speaking on a panel discussing the latest Emerging Trends report.
Economic cycles end because of overheating, such as wage growth of 4% or greater, Ms. Ludgin said.
"It's not bad that the U.S. wage growth has been around 2% and up to 2.8% recently so the Fed has not had to step on the brakes," she said. "When the Fed gets it wrong, it pushes us into a recession."
Separately, the report noted that real estate managers and other investors are investing more in smaller cities.
Investors were "more defensive" in 2011 and invested mostly in so-called gateway cities such as San Francisco, Los Angeles and Washington.
Since then, investors have been willing to look at smaller real estate markets, Mr. Roschelle said.
Seattle is the top real estate market to watch for overall real estate prospects, followed by Austin, Texas; Salt Lake City; Raleigh/Durham, N.C.; and Dallas/Fort Worth, the report states. This ranking has been in a state of flux. Last year Austin was in the top spot. Dallas/Fort Worth held the No. 1 spot in the 2015 survey, which projected trends for 2016. Houston was in the top spot in the survey projecting trends for 2015, taken before the energy industry disruption; it is now number 60.
There were about 1600 respondents to this year's survey, which was conducted this past summer.