Trending Markets March 29, 2018 2017 is in the books and the general consensus seems to be that 2017 performed better than many anticipated. With 2018 well underway, all eyes are now on what the next couple of months will bring and which markets will hold the greatest potential. PricewaterhouseCoopers and Urban Land Institute recently released its annual Emerging Trends in Real Estate report, which analyzes leading North American markets, including the top 10 U.S. real estate markets to watch in 2018. It is interesting to note that only three of the cities are in tier I/primary locations. And coincidentally—or perhaps not—Amazon has identified five of the top 10 markets as a possible site location for its second headquarters. KBS has a presence in eight of the markets, excluding Fort Lauderdale and Boston. Seattle Austin Salt Lake City Raleigh/Durham Dallas/Ft. Worth Fort Lauderdale Los Angeles San Jose Nashville Boston What makes these cities the “chosen 10” is what they have in common: rapidly expanding populations—especially the younger cohort—high connectivity, technology readiness, ease of doing business and positive fundamentals across nearly all property types. More specifically, markets like Austin, Dallas and Nashville are characterized by dynamic start-up economies and entrepreneurial activity that account for approximately 10% of new company formation (per given market) in the last three years, according to the report. There also appears to be no shortage of highly-capitalized investor demand seeking out prolific opportunities in the top 10. Vibrant culinary scenes and active live-work-play environments are also synonymous with these markets. In Seattle for example, 93% of residents have walkable access to a city park, and in San Jose, 72% of residents have direct access, the Emerging Trends in Real Estate report shows. KBS collectively owns interest in 26 properties amassing 7.9 million square feet in the top 10 markets. Eight of those properties are in Austin. In the last decade, the city’s employment base and number of jobs have expanded by about 3% per year—more than twice the national average, according to a BiggerPockets article. The booming technology sector is driving most of this growth, drawing in talent from all over the country. Austin is on Amazon’s prospective HQ2 list. In general, KBS’ Austin properties continue to perform very well and the city remains one of KBS’ target markets. Stonebridge Plaza I & II features an irreplaceable location fronting MoPac Expressway and has historically enjoyed higher occupancies due its efficient design, freeway accessibility and proximity to retail, hospitality and entertainment offerings. Raleigh has become an appealing location for office tenants, retailers, restaurants, hotels and residential tenants. Job growth is strong, supported by the growing medical, research and technology fields. KBS has been strategically expanding its portfolio there and currently owns three office properties, including the Bank of America Tower (North Hills Tower II), a newly-constructed 18-story office tower and one of the tallest buildings in Midtown Raleigh. On the multifamily front, KBS completed the construction of the high-end Park Central Apartments-JV Development in late 2017. The property features 286 residential units, a multi-level parking deck and street-level retail space, and is one of the highest quality in multifamily product in Raleigh. While not a top 10, Portland claims the 13th spot on the Emerging Trends in Real Estate list. There is a strong demand for quality creative office space, resulting in tremendous adaptive reuse activity in recent quarters. In another JV play, KBS acquired and is in the process of redeveloping floors one through five of the Meier & Frank Building, a 16-story nationally landmarked building in Portland’s central business district, into flexible mixed-use office and retail space. The popular Nines Hotel will continue to occupy the building’s upper floors and features a rooftop restaurant with sweeping skyline views. Given the historic significance, architecture, and floor plate sizes of this asset, KBS believes that The Meier & Frank Building’s accessible, marquee location will attract first-class tenants seeking a unique space in Portland. Slow and steady growth is the name of the game of this year. As the Millennial population rapidly enters the workforce and powerhouses like Amazon shop around secondary locations for new office space, many of the Emerging Trends in Real Estate’s top 10 markets are positioned to perform exceptionally well.