Trends Affecting McKinney

Real Estate Industry Trends

The Urban Land Institute (ULI), is a nonprofit research and education organization whose mission is "to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide". Its members work in government, academia, along with real estate and urban development industries. Presented below are select references from the 2015 Emerging Trends report related to movements -- financial, political, and other -- anticipated to impact market decisions nationally and locally. Also included are highlights of expected activity in the DFW Metroplex.

Real Estate Industry Trends

1. The 18-Hour City Comes of Age

Downtown which have combined the key ingredients of housing, retail, dining, and walk-to-work offices -- “18-hour markets” are those that quiet down for a few hours each day.

2. The Changing Age Game

Millennials -- a bigger cohort than the Baby-Boom generation -- will continue to cause change at an accelerated rate over the next ten years. “Renters-by-choice" -- Millennials feel the pressure as $1 trillion in student debt needs to be paid off.

Real Estate Industry Trends

3. Real Estate’s Love / Hate Relationship with Technology Intensifies

• In an age of digital maturity, technology is considered essential for new business tools and environments, new business paths, and a source of user demand.

• Investors use the presence of tech firms and science, technology, engineering, and math (STEM) workers in a metro area as a screen for acquisition strategies.

• Financial firms no longer drive office demand, rather technology and media industries.

• Retailers look to the internet both as a source of competition and as a way to drive consumers into stores.

• Inventory control reduces store sizes, while demand for same-day fulfillment drive demand for warehousing space and placing logistics firms at the intersection of wholesale and retail trade.

• The rise of the sharing economy is finding success with the Millennial generation, which is very comfortable sharing rather than owning meaning more collaborative and shared-office space and fewer hotel rooms.

Real Estate Industry Trends

4. A New 900-Pound Gorilla Swings into View

Unlike the long-term hold preference among current benefit managers -- liquidity will be important, favoring REITs as a vehicle over direct \ investments.

5. Infrastructure: Time for the United States to Get Serious?

Reliance upon roads, bridges, transit, water systems, an electric grid, and a communications\network put in place 50, 75, even 100 or more years ago, combined with a nation that is not investing in its physical facilities, continues to challenge our ability to compete and limits the delivery of improvements technology could provide.

Real Estate Industry Trends

6. Housing Steps Off the Roller Coaster

Residential real estate looks to be returning to the classic principles of supply and demand, with greater sensitivity to any deviation from equilibrium with growth in the number of U.S. households driving demand - particularly among rental housing product types.

7. Keeping an Eye on the Bubble— Emerging Concerns

Concern that recently disciplined capital markets may be on the verge of becoming too aggressive is giving pause, wondering whether real estate developers will forget the hard-learned lessons of the recent past.

Real Estate Industry Trends

Dallas / Fort Worth

• Despite being ranked lower than Houston, economic diversity could make growth in the Metroplex more sustainable.

• The market continues to be attractive to real estate investors because of its strong job growth, which benefits from the low cost of living and doing business.

• Among 75 of the nation's largest real estate markets, in Dallas / Fort Worth --

• Single family housing is the highest-ranked property sector

• Overbuilding in the multifamily sector has it ranked number 17

• Industrial real estate is number four among the top five markets -- and

• Office sector is ranked number five, hotels ranked number 11, and retail number 34

• Institutional investors continue to be active in Dallas / Fort Worth, and attractive to both local and institutional commercial and residential developers.

Demographic Characteristics

• Over the last 5 years, the City of McKinney has grown at a rate more than twice that of the DFW Metroplex overall.

• The City’s average household size is higher than the DFW Metroplex overall. Not surprisingly, the City has a lower share of one- and two-person, and non-family households, and a significantly lower share of renter-occupied households.

• The City’s age profile skews slightly younger than the DFW Metroplex overall, with a higher degree of school-age children, a lower share of persons age 65 and over, and a lower median age.

2013 Indicator (unless otherwise noted) City of McKinney

Dallas/Fort

Worth

Metroplex

2010 Population 131,117 6,426,214

2010 Households 44,353 2,298,498

2015 Population 155,142 6,954,330

2015 Households 52,700 2,443,100

Annual Household Growth Rate (2010 to 2015) 3.5% 1.6%

Average Household Size 2.99 2.80

Percent Non-Family Households 21% 31%

Percent One- and Two-Person Households 42% 56%

Percent Renters 30% 41%

Percent Age 65+ 7% 9%

Percent Age 0-17 32% 30%

Median Age 33.0 33.8

Percent With Bachelors Degree 49% 29%

Median Household Income $81,118 $53,600

Percent With Income Below $25,000 9% 21%

Percent With Income Over $100,000 46% 23%

Percent Hispanic 20% 27%

Percent Black/African-American 11% 14%

Percent Asian American 5% 5%Source: U.S. Census ; American Community Survey; Ci ty of McKinney and Ricker│Cunningham.

Demographic Characteristics

• The City has significantly more college-educated residents than the Metroplex overall.

• Household incomes in the City are also more substantially higher than those for the Metroplex.

• The City’s ethnic profile shows a lower degree of both Hispanic and African-American residents, and a similar degree of Asian-American residents, as compared to the DFW Metroplex.

2013 Indicator (unless otherwise noted) City of McKinney

Dallas/Fort

Worth

Metroplex

2010 Population 131,117 6,426,214

2010 Households 44,353 2,298,498

2015 Population 155,142 6,954,330

2015 Households 52,700 2,443,100

Annual Household Growth Rate (2010 to 2015) 3.5% 1.6%

Average Household Size 2.99 2.80

Percent Non-Family Households 21% 31%

Percent One- and Two-Person Households 42% 56%

Percent Renters 30% 41%

Percent Age 65+ 7% 9%

Percent Age 0-17 32% 30%

Median Age 33.0 33.8

Percent With Bachelors Degree 49% 29%

Median Household Income $81,118 $53,600

Percent With Income Below $25,000 9% 21%

Percent With Income Over $100,000 46% 23%

Percent Hispanic 20% 27%

Percent Black/African-American 11% 14%

Percent Asian American 5% 5%Source: U.S. Census ; American Community Survey; Ci ty of McKinney and Ricker│Cunningham.

Age Cohort Migration

• Tracks how individuals within three major age cohorts – Baby Boomers, X Generation and Y Generation -- have migrated throughout the City and surrounding area over the past 20 years

• Representation of movement, rather than an exact representation of regional mobility

• Illustrates concentrations of population within that cohort, thereby suggesting the magnitude of the market’s depth

Baby Boomers:1980: 16 - 34 years1990: 26 – 44 years2000: 36 – 54 years2010: 46 – 64 years

X Generation:1980: < 15 years1990: 6 – 25 years2000: 16 – 34 years2010: 26 – 45 years

Y Generation: *1980: n.a.1990: < 5 years2000: < 15 years2010: 10 – 25 years

* Individuals classified as Y Generation are also

referred to as Millennials and Echo Boomers.

Age Cohort Migration: Baby Boomers 1990

• Movement of Baby Boomers beginning toward more suburban areas and away from “inner ring” areas (family building)

Age Cohort Migration: Baby Boomers 2010

• Continued movement of Baby Boomers toward more suburban areas but some movement back to more urban areas

Age Cohort Migration: X Generation 1990

• “School age” X Generation moves with parents

Age Cohort Migration: X Generation 2010

• X Generation now reaching “family building” years and moving toward more suburban areas

Age Cohort Migration: Y Generation 1990

• Like X Generation, new Y Generation moves with parents (new families)

Age Cohort Migration: Y Generation 2010

• Oldest of Y Generation beginning to reach post-college years and making decisions about next move

• Early signs are that Y Generation is moving away from suburban areas and back into urban areas

• The shifts away from the suburbs by the Baby Boomers and Y Generation populations could be partially due to a relative lack of housing products which address their current needs and desires.

Lifestyle Segmentation (Psychographics)

• Psychographics is a term used to describe the characteristics of people and neighborhoods which, instead of being purely demographic, speak more to attitudes, interests, opinions and lifestyles. Tapestry (ESRI) is a leading system for characterizing neighborhoods into one of 67 distinct market segments.

• Commercial retail developers are interested in understanding a community’s psychographic profile, as this is an indication of its resident’s propensity to spend across select retail categories. Residential developers are also interested in understanding this profile as it tends to suggest preferences for certain housing product types

• The City of McKinney is dominated by upper class psychographic segments, indicating high incomes, high disposable retail spending and a desire for suburban living.

Tapestry Segment

2015

Households

% of Total

Households

U.S.

Index=100*

Boomburbs 17,437 33.4% 2,272

Up and Coming Families 12,621 24.2% 1,098

Soccer Moms 5,236 10.0% 356

Professional Pride 3,610 6.9% 435

Middleburg 2,153 4.1% 147

Bright Young Professionals 2,087 4.0% 182

Barrios Urbanos 1,533 2.9% 282

Retirement Communities 991 1.9% 156

Fresh Ambitions 957 1.8% 282

Young and Restless 875 1.7% 99

Total Above Segments 47,500 90.9% --

Total Trade Area 52,230 100.0% --

* Indicates concentration of this segment relative to U.S. average. A segment

index of 200 would mean that this group contains 2 times the concentration

of households compared to the average U.S. neighborhood.

Source: ESRI and Ricker│Cunningham.

Lifestyle Segmentation (Psychographics)

• Tapestry data can be organized into LifeMode Groups and Urbanization Groups.

• LifeMode Groups are a reflection of general lifestyle characteristics and lifestage.

• Urbanization Groups indicate the type of living environment that different people are drawn to, based on geographic and physical features such as population density, size of city, location in or outside a metropolitan area, and whether it is part of the economic and social center of a metropolitan area.

• As shown, over 70% of McKinney households fall into the Affluent Estates and Ethnic Enclaves LifeMode groups. Over 77% of households fall into the Suburban Periphery Urbanization Group.

LifeMode Group

2015

Households

% of Total

Households

U.S.

Index=100*

Affluent Estates 21,758 41.7% 411

Ethnic Enclaves 14,874 28.5% 329

Family Landscapes 7,389 14.1% 166

Middle Ground 2,572 4.9% 42

Midtown Singles 1,588 3.0% 42

Total Above Groups 48,181 92.2% --

Total Trade Area 52,230 100.0% --

Urbanization Group

2015

Households

% of Total

Households

U.S.

Index=100*

Suburban Periphery 40,583 77.7% 240

Urban Periphery 5,053 9.7% 54

Semirural 2,878 5.5% 57

Metro Cities 2,749 5.3% 27

Principal Urban Center 957 1.8% 35

Total Above Groups 52,220 100.0% --

Total Trade Area 52,230 100.0% --

* Indicates concentration of this segment relative to U.S. average. A segment

index of 200 would mean that this group contains 2 times the concentration

of households compared to the average U.S. neighborhood.

Source: ESRI and Ricker│Cunningham.

Fiscal Balance

Purpose

• Evaluate Future Land Use Scenarios from City’s Fiscal Perspective

• Raise Awareness as to Fiscal Implications of Land Use Decisions

• Represents Community’s “Return on Investment”

Components

• Land Use Mix (product types, values)

• Fiscal Revenues (property and sales tax, other revenues)

• Service Costs

Fiscal Balance

Considerations

• Residential development generally results in more costs than revenues

• Nonresidential development generally results in more revenues than costs

• Challenge is to “balance” land use types with fiscal implications

• Market absorption of land uses is critical to achieving and maintaining fiscal balance