By Adam Hooper
Many individuals have discovered the numerous benefits of investing in real estate—most notably, diversification into a dependable asset class that provides steady return on investment from rental income in the face of market volatility.
Like the U.S. economy in general, real estate has been in a very long growth period. As we move into the next phase of the economic cycle, several real estate trends are emerging that will affect investments in this sector. As one of the nation’s leading direct investment online real estate platforms, we highlight below the real estate trends we see as most impactful for investors in 2020:
1. Increased Adoption of Technology
While the real estate industry has typically been slow to adapt to advances in technology, in the last few years the market has more readily embraced high-tech systems and products. This trend will escalate in 2020.
From virtual reality tours of office space to voice-activated technology in apartment living to the internet of things (IoT) in building design and development, technology continues to disrupt real estate—in a good way. Building systems management, blockchain, and artificial intelligence will further accelerate the use of technology in all areas of the industry and create new opportunities for growth and investment.
The way people buy real estate is also changing, with direct investing using online platforms like RealCrowd becoming increasingly prominent as investors demand higher levels of transparency, convenience, and timeliness in their transactions.
In 2020, expect direct investing to become even more investor-focused and diverse, providing educational articles and webinars, access to advisory services, and a broader range of offerings to help investors achieve their wealth-building and preservation goals.
Regardless of how much or how quickly digital processes are adapted by real estate companies, there will always be a need for the human touch in this industry. Companies that provide smart investment advice, go the extra mile with service, and interpret data will be especially in demand in the coming year as we navigate through the economic cycle.
2. Accelerated Investment in Secondary Markets
There once was a time when real estate buyers focused on the top-10 primary markets for investing, including such big cities as Los Angeles, New York, San Francisco, Chicago, Boston, and Washington D.C.
As more people in the U.S. and abroad have realized the advantages of real estate investment, those markets have become oversaturated with many interested buyers chasing a limited number of properties for sale. Smaller investors have looked elsewhere for their real estate purchases, seeking deals in secondary and tertiary markets where there is less competition with institutional and foreign investment capital.
In 2020, we expect to see more investment in these markets, including Austin, Raleigh/Durham, Charlotte, Nashville, Orlando, and Atlanta. Other emerging markets include Tampa/St. Petersburg, Northern Virginia, Brooklyn, Indianapolis, Charleston, and Portland, Oregon, among many others.
We are noting a trend of increased direct investment into strong growth markets throughout the country on our RealCrowd platform. Regions with job and population growth, strong transportation infrastructure, and prominent educational institutions are likely to spark the most investor interest.
Seeking Out the Suburbs
Another geographical shift we are noticing is the growth of “hipsturbia,” a move by both younger and older generations alike away from cities toward “cool” suburbs that emulate urban living. The cities have with, 24-hour downtowns and walkable environments in which people can live, work, and play.
As cities become more expensive and packed with residents, workers, and visitors, we anticipate increased real estate investment activity in these suburban nodes, which can accommodate this trend of outmigration.
3. Investment in Alternative Property Types
While many investors are aware of the “four main food groups” of real estate asset classes—office, industrial, retail, and multifamily—a host of alternative categories are gaining ground as buyers seek a less-crowded arena and greater returns or yield on their investments.
A few of the real estate property types that are expected to garner more interest from investors in 2020 are data centers, self-storage, senior housing, medical office, manufactured housing, and co-living.
Data centers, which house essential components of IT infrastructure, are generating high demand, and the emergence of powerful 5G technology is likely to further increase this need. As a society we will only become more dependent on technology and the data that drives it, which underscores continued future demand for an increase in data center investments.
Investing in the Sharing Economy
Demand for senior housing is also on the upswing as the population ages and seniors move to specialized residential communities, many of which offer activities, a social network, and health-and-wellness services. RealCrowd has seen an uptick in sponsors on our direct investment platform focused on senior housing investment in development in the past few years, and we expect this trend to continue.
With a decrease in home affordability, manufactured housing and co-living are viable alternatives to those who may be priced out of the traditional housing market. Also, a shortage of construction labor and rising construction costs are giving these sectors fresh appeal for developers. Manufactured housing offers investors a much less traveled option with the potential for strong returns, while co-living offers residents a dramatically reduced cost of housing while also maximizing the potential for investor return.
4. Increased Emphasis on Green Buildings
Like elsewhere in society, sustainability has become a topic of concern in the real estate sector. As environmental and social governance (ESG) becomes a key factor in tenants’ and real estate investors’ decisions, developers, owners, and property managers are increasingly instituting green principles in the development and management of properties.
In embracing ecologically sound methodologies, stakeholders are discovering additional upsides, including reduced utility costs and industry certifications that make a difference for investors and tenants, such as LEED certification from the U.S. Green Building Council, which is awarded to properties that meet certain strict environmental criteria.
As the real estate industry adapts more climate-friendly policies in 2020 and beyond, investment in properties that place a high priority on sustainable principles will generate more interest from investors.
5. A Greater Sense of Community
A trend toward communal living, working, and recreating is emerging and expected to deepen in 2020.
The popularity of apartment rooftop decks, office co-working space, event-filled public gathering spaces, and mixed-use properties (combining office space with residential, retail, and other uses) demonstrates that people want to be together. City planners and developers are inventing new ways to provide this collaborative engagement in the built environment, and investors are supporting it.
The rise of community is also evident in investment vehicles like crowdfunding, in which many investors buy small shares of ownership in a property. As crowdfunding continues to attract the attention of a broad group of individual investors, direct investment platforms like RealCrowd provide an opportunity to invest with a community of like-minded investors.
As the current economic cycle matures, real estate continues to be a smart alternative for investors looking to diversify their portfolios. Keeping an eye on real estate trends including increased integration of technology; rising investment in alternative markets and property types; properties and processes that integrate green principles, and a burgeoning sense of community will help guide investors toward more profitable real estate purchases.