The start of a new decade carries all kinds of economic predictions, hopes, expectations and fears — all of which shape the way we invest.
Toward the end of the last decade, real estate investors began to look more favorably on smaller markets in the U.S., where job and population growth show signs of healthy returns.
Another pattern that emerged was a search for alternative assets and forms of investment, such as destination rental properties and commercial real estate syndication.
As we look ahead in 2020 and beyond, forecasters expect these trends will continue in several new directions. Other factors in the housing market as a whole could also reinforce investment in more traditional rental properties.
Writing for BiggerPockets, Adam Hooper emphasizes the growing role of technology in all aspects of real estate, from virtual reality tours to the internet of things influencing design choices.
Most notably, Hooper foresees a rise in direct investing through platforms such as RealCrowd, which connects investors to commercial real estate professionals with the same ease of access enjoyed by institutions, pension funds and university endowments.
The push to invest in alternative property types is expected to go beyond the trend of vacation rentals into areas that reflect larger economic trends. We’re likely to see more investment in data centers, self-storage, senior housing, medical office, manufactured housing and co-living.
Hooper also sees a continuing trend of community-oriented development, whether it’s rooftop decks on apartment buildings, mixed-used properties with big brands on the ground floor of residential complexes, or communal living spaces that intersect with work life.
On a more macro-scale, Ingo Winzer writes for Forbes that the U.S. will likely see a greater concentration of demand for real estate in specific markets where businesses are clustering. From Forbes:
Just 30 markets – where 40 percent of the population lives – received 60 percent of the new jobs created in the last five years. The other jobs were pretty much evenly spread around the country. What this means for investors is that demand for housing in big markets almost certainly will continue to grow faster than builders can create more supply. In other words, prices will keep going up and so will rents.-Ingo Winzer for Forbes
Still, Winzer believes the growth in home prices will slow down at some point because incomes have not kept pace. After 5% growth in home prices in 2019, he projects a more modest 3% in 2020.
In more and more big cities, the gap between owning and renting may grow large as it traditionally has been in New York and San Francisco. Investors should consider carefully whether they are likely to get a better return from renting apartments to those who can afford them, rather than renting a single-family home that few can afford.
With high demand for housing and the continued maturation of millennials, many of last year’s trends appear to be setting up important questions for 2020.
Will the supply of affordable homes be sufficient? Will smaller markets maintain their growth or reach a peak? Can investors rely on traditional properties to deliver expected returns?
What is clear is that technology will driving new forms of real estate investment into 2020 and beyond, offering new opportunities for investors to find the right locations and purposes for their properties.
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