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FHWA Office of Real Estate Services Research Results: 2006 Preferred Future Scenario for Public Sector Real Estate

How We Got There

As mentioned in the Introduction to this report, much of the first day of the Think Tank was devoted to exploring long-term future trends and issues. The group participated in a number of exercises and reviewed a number of trends as presented by the futurist facilitator designed to create a mind-set of long-term thinking. The exercises helped to remove the constraints often placed on our thinking by the more immediate need to solve problems faced in the day-to-day conduct of business. This section describes those exercises and their results and presents the trends as foreseen by the futurist facilitator.

3.1 Critical Questions

The Think Tank began with a discussion to provide participants the opportunity to note the questions that they had, both about the Think Tank itself and about public sector real estate and the over all project. No attempt was made to answer these questions or even to explore them in detail. The exercise was merely to get the questions out on the table. The following questions/ideas/issues were expressed as critical questions for public sector real estate:

3.2 Global, National and Real Estate Trends Shaping the Future - The Decades Activity

Think Tank participants explored long-term trends using a brainstorming technique called "decades." In this activity, each decade beginning in 1950 was explored for the key events, trends, and developments shaping that decade, including global and national trends as well as those in public sector real estate specifically. Patterns of change were then noted in a group discussion. Finally, teams imagined that they were looking backward from the perspective of two decades in the future, and in the same manner, suggested the events, trends and developments that had occurred from 2006 to 2030. The goal was not science fiction writing but a considered forecast of likely developments that will, indeed, shape the next two decades. The results of this activity are below.

Past Decades - Events, Trends and Developments

1950's (White Team)

1960's

1970's (Green Team)

1980's (Red Team)

1990's-2005 (Yellow Team)

Patterns of Change

Reviewing the decades, participants noted an increasing reliance on technology and increasing complexity. Organizationally, there is a trend toward a demand for efficiency. There is social movement toward increasing respect for individual rights, balanced by an increasing depersonalization. Mobility increases, as does access to information. Globalization is an obvious theme as global interactions of all kinds increase. In terms of urban and real estate forms, there seems to be a shift from rural and urban living as dominant, to the strong suburban trend that is familiar, to a more recent shift back toward urban re-development and living. Whether this latest cycle will become significant is not yet known, but the group noted that the decades do seem to have a cyclical character.

Events, Trends and Developments 2006 - 2030

After exploring the decades, Think Tank participants turned their attention to the coming decades, and by imagining a backward view, developed a set of top forecasts of future events, trends and developments. Each group's view is presented below.

Yellow Team

Blue Team

White Team

Green Team

3.3 Global, National and Real Estate Trends Shaping the Future -

Futurist.com Perspective

After the Think Tank participants had brainstormed and discussed their view of the future, Glen Hiemstra from Futurist.com, presented a view of trends based on data and research.

Public sector real estate will be impacted by a variety of issues over the next 25 years. These include:

These issues are explored in more detail in the paragraphs below.

Demographics

The nation is getting older, profoundly so. Of all the 65-year olds who ever lived, two thirds are alive today, and in 1,752 days from the time of the Think Tank, the baby boom generation, some 76-million strong, will begin to turn 65. By 2030 and beyond, as much as 20 percent of the national population will be over 65, and in many states and regions it could be as much as 30 percent of population in that age category.

If you look at the classic population pyramid chart when the century began (Exhibit 3-1 below) it still resembled the classic shape of the population - lots of younger people, a few older people. But by 2050 - As shown by Exhibit 3-2 - the population will have inverted and become rectangular in shape, with as many elders and youth.

Exhibit 3-1: 2000 Age Wave

Population Pyramid for United States: 2000. Click for tabular version.

Exhibit 3-2: 2050 Age Wave

Population Pyramid for United States: 2050. Click for tabular version.

This degree of change will be disruptive, not a mere continuation of business as usual. For public sector real estate it may mean increased value for high-density living and transit oriented development that makes living and transportation easier for independent elders. It could also intensify the challenge to develop transportation facilities and systems that are safe for older people. Some changes could include on-demand transportation services; enhancements to regular fixed-route transit; a retooling of the highway system with such features as larger lettering on signs, brighter edgelines and pavement markings using reflectors; and technologies that assist those in wheelchairs and with hearing and visual impairments better navigate sidewalks and crosswalks and more readily use the transit system.

A second population trend that is surprising to many is the impending decline of global population. Driven by falling fertility rates worldwide, entire regions of the world will go into population decline soon. Russia and Japan are already decreasing in population. In North America, fertility rates have fallen to 1.5 in Canada and 2.08 in the U.S. Since this map was created, the fertility rate in Mexico has fallen to 2.1. Within the time frame of this Think Tank event (the year 2030), it becomes possible to imagine the U.S. nearing its maximum population size, depending entirely on what happens with immigration policies. As population nears this maximum size, there will certainly be consequences for real estate values and land use.

The U.S. Census Bureau expects that a shrinking population will be postponed for some time in the U.S., until at least 2050, and in fact anticipates an overall increase of nearly 100 million people. But this population is not expected to distribute itself evenly around the country. Some regions will grow more rapidly than others, and a few may actually remain stable or shrink. The map below, Exhibit 3-3, illustrates the 10 fastest (vertical stripe) and 10 slowest (diagonal stripe) growing states. While one can ask whether these are permanent trends in the face of, for example, global warming, for the reasonable future it is safe to assume that demands on public sector real estate will differ by region.

Exhibit 3-3: 10 Fastest and Slowest Growing U.S. States, 2000 - 2030

US Map, click for long description
Legend for map in Exhibit 3-3. Click map for long description.

Source: U.S. Census Bureau, Population Division, Interim State Population Projections, 2005.

One additional demographic trend is the emergence of the digital native generation. Sixty million strong, this is the generation of young people born since the early 1980s, or since personal computers, cell phones, and more recently the World Wide Web. They already use information and communication technologies in ways and at levels that are far beyond previous generations. They will both use and be available to design/maintain a future transportation system that will be highly integrated with location aware communication technology. Moreover, as entry-level employees in the public sector real estate profession, they will expect access to the latest technology and be skilled at a much higher level of automation of processes than today's working generation.

Energy

There is little doubt that the energy and transportation equation will change in fundamental ways in the next 25 years. Specifically, there are serious questions about the sustainability of a transportation infrastructure dependent on gasoline and oil, as these become more expensive and quite possibly scarce. While the subject of controversy, the concept of peak oil is now openly debated. It is generally accepted that the kind of relatively inexpensive oil on which our society has been built is nearing a peak in supply, after which either alternatives or much more expensive fossil fuels will be substituted. The fact of a peak is no longer seriously disputed, though the precise timing is. In one view the peak may be very soon. Others contend that the peak in such oil supply will not come until 2027. The difference is negligible. It is likely that in the time horizon of this study, the national fuel infrastructure will begin a process of transition away from being based purely on oil and toward a mix of alternatives.

Will we run out of oil soon? No, if you take into account potential sources such as tar sands and oil shale. But, will we thus use oil as we do today, forever? Again, the answer is no, not only because viable alternatives will be developed, but because of the next factor, global warming.

Environment

A variety of environmental issues may impact public sector real estate, including global warming. A consensus has emerged in recent years that the warming we are measuring is real and is caused to a substantial degree by the activities of industrial civilization. The warming is most clearly seen in the melting of Arctic and Antarctic ice where temperature increases are two to three times that of the rest of the planet.

What does this have to do with public sector real estate? As the planet warms up, the frequency and severity of storms will increase, the value of real estate will fluctuate, sea levels may rise enough that some real estate actually disappears, and population migrations responding to these changes will occur.

Economy

Four interacting factors suggest economic discontinuities rather than stability in the next 25 years. Rapid technology developments and convergence of technologies continues, leading to both increased productivity and churn in the nature of the economy. The past five years have seen the creation, once again, of a huge deficit drag at the Federal level, limiting options and shifting debt payments forward. As the last of the baby boomers move out of their peak spending years and are replaced by the smaller generation X cohort, the ability of U.S. consumer spending to pull the national and even global economy along becomes more problematic. Finally, growth in China and India presents a two-edge sword, sustaining a growing global economy while challenging U.S. economic leadership toward the end of the study time period. The bottom line is increased or at least maintained pressure on Federal resources in the foreseeable future.

Technology

Among many technology advances, two stand out for their potential impact on public sector real estate, nanotechnology, and advanced 3-D, wireless communications. Nanotechnology, while sounding too exotic to impact something so basic as real estate may have profound effects toward the end of the study period and important effects even earlier. Think of nanotechnology as merely the ability to work with matter at the molecular and atomic scale, where the properties of matter change in important ways. Work in this arena, being done now with substantial Federal research dollar support, is already leading to the formulation of nano-concrete, which can lead, soon, to lighter and stronger bridges that take less time to construct and which last longer. On the more distant but realistic horizon are building materials that are resistant to earthquake, light-weight, and even self-constructing.

Communications technology, including robust 3-D communications over vastly improved bandwidth communications will alter distance communications and lead to systems in which all consumers can know at all times where, for example, transit vehicles are and thus how long a wait may be. A system that seems currently to be unpredictable suddenly becomes very predictable and thus more attractive to use.

Automobiles

Hybrid and flex-fuel vehicles become the norm in the near-term future, and then become smart enough for collision avoidance. The entire real estate infrastructure will begin to interact with transportation vehicles in the medium term as they also interact with each other. Less real estate will be required for the same traffic density, and safety will be vastly improved. Automobiles and other vehicles will increasingly become moving communication devices and, if fuel cells become viable, moving electricity plants. Toward the end of the study period, automobiles will become truly "automatic," capable of driving themselves.

Roadways

There is a traffic paradox already occurring which will gain momentum in the coming years. Traffic will increase as the standard work commute decreases. The changing nature of globalizing work will mean fewer centralized and synchronized workplaces, even while people move around constantly in order to get together, despite robust communication systems. Roadways and transportation guideways will adopt new materials such as nano-concrete and composite materials, while they also, obviously, become very intelligent. Networks of small sensors will send a constant data stream that enables better maintenance and improved highway safety. Since it is likely that freight traffic will continue its rapid growth, ways to establish separate freight corridors will be emphasized, whether these are barrier separated roads or rail systems.

Transit

A variety of converging trends suggest growing emphasis on transit and on public private partnerships to build transit oriented developments. These trends include continued urbanization as more than half, and by the end of the study period, 75 percent of the national population lives in cities and metro areas. Communication technology that enables a smart transit system, an elder population inclined to ride more than to drive, global warming and other environmental concerns, and potential breakthroughs in light-weight materials suggest that transit is likely to grow in the next 25 years, with consequent impacts on public sector real estate. No impact is greater than the growth of transit oriented development, which translates into a greater emphasis on multi-use right-of-way and changes in property values within these development areas.

Trains and Airplanes

International progress with high-speed, intercity rail is well known. Regional interest in such systems is growing in the U.S., though development lags. All of the converging forces discussed earlier, along with the economics of air travel, suggest that significant initiatives in high-speed rail (200mph and up) will appear in the next 25 years. Such corridors will offer tremendous real estate development value opportunities.

Recently, the National Aeronautics and Space Administration (NASA) and the Federal Aviation Administration (FAA), along with industry and academic partners, completed a five-year research program called the Small Aircraft Transportation System (SATS). SATS was a research and development program focused on maturing technologies needed for a small aircraft transportation system. SATS successfully demonstrated that certain technologies - "highway in the sky" navigation systems, advanced flight controls, on-board computing and automated air traffic separation and sequencing technologies - will enable safe and affordable access to virtually any runway in the nation in most weather conditions.. The study pointed out that while a small percentage of the national population lives within a 30-minute drive of a commercial airport, 95 percent of people in the U.S. live within a 30 minute drive of the nation's 5,000 or more smaller airports. Thus, the project anticipates that breakthroughs in navigation, air traffic control, and aircraft themselves can lead to significant growth in personal and private air taxi and freight traffic into such airports. There are many economic development and real estate implications of such developments if they come to pass.

Community Design

The national shift of population toward urban and metro centers has been noted, and is an international trend as well. Denser cities, with more opportunities to retrofit for walking, biking, transit, and smart auto traffic will dominate the coming decades. The communities that attract economic vitality are walkable, vibrant and varied in that work, residential and retail are mixed in close proximity. They are the opposite of the classic industrial 9:00 to 5:00 city that emptied of people at night. Housing prices along with values around the single-family home are at the current time still driving an ex-urbanization movement, but this is countered by the re-vitalization of urban areas. Toward the end of the study period, expect the latter trend to have won out, as an aging population, high-energy costs, and changing economic dynamics push people to the center, with a variety of real estate implications.

Public Sector Real Estate

A literature survey, see the Appendix, on this profession suggests several specific trends:

3.4 Four Scenarios of Possible Futures

Following the process discussed in Section 2.1, each of the four Think Tank participant teams developed a plausible future scenario and gave it a name. The scenarios were developed in a timeline fashion, beginning in 2006 and ending in 2030. Teams had long strips of paper on which they drew their timeline, noting prevailing conditions (as defined by the predetermined elements, critical uncertainties and the groups' own ideas) above the drawn line, and the resulting impacts on and responses by the public sector real estate community below the drawn line. See Exhibit 2-1 for a review of the predetermined elements and critical uncertainties guiding the scenario development.

This section defines the critical uncertainties guiding each scenario and outlines the key components of each scenario. Not all groups completed the exercise in the allotted time. Consequently, the outlines are not uniformly complete.

Red Team - "To PPP or not to PPP"

Assigned critical uncertainties:

  • No significant change achieved (through legislative action) in the definition of "public use" on which eminent domain can be used.
  • Legislative and policy changes occur that discourage Public-Private Partnerships

2006 - 2010
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

2010-2015
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate

2015 - 2020
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate

2020-2025
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

2025-2030
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:
None developed due to time limitations

Yellow Team - "To Hell and Back"

Assigned Critical Uncertainties:

  • National Disasters
    • Terrorist Attack
    • Earthquake
  • Severe limitations placed (through legislative actions) on the definition of "public use" on which eminent domain can be used.

2006 - 2010
Conditions:

Resulting Impact on/Response by Public Sector Real Estate:

2010-2020
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

2020-2030
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

Green Team - "Disaster Encourages New Trends (DENT)"

Assigned Critical Uncertainties:

  • National Disasters
    • Pandemic flu
    • Significant sea level rise
  • China and India markets significantly open to U.S. goods and services

2006 - 2010
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate: None developed.

2010-2020
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

2020-2030
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate: None developed.

Blue Team - "Sea Change"

Assigned Critical Uncertainties:

  • National Disasters
    • Pandemic flu
    • Significant sea level rise
  • China and India markets significantly open to U.S. goods and services

2006 - 2010
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

2010-2020
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

2020-2030
Conditions:

Resulting Impacts on/Response by Public Sector Real Estate:

Updated: 04/02/2013
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