by David Drake
The US real estate industry is predicted to maintain its constant progress through 2016, energized by improved fundamentals, the resilience of investors and the market’s growing flexibility, according to Emerging Trends in Real Estate 2016, a report co-published by #PwC US and the Urban Land Institute #ULI.
Real estate has become a melting pot of innovations which sprang from the different emerging trends such as fintech, crowdfunding, and alternative financing. This makes the industry a dynamic landscape, especially in the global arena. Entrepreneurs can take advantage of these trends and leverage the market to their benefit.
The impact of today’s technology on the young population and their subsequent needs are shaping the commercial real estate industry today. Here are the main prospects for real estate in 2016:
1. 18-Hour Cities 2.0 – one of the best bets among secondary markets
Last year we saw the expansion of urban investments and downtown transformations away from the gateway cities and into the heartland communities. This development surge led to the birth of “18-hour cities”, a smaller metropolitan area that attracts both investors and customers with low-cost facilities. These urban centers that include offices, retail and dining facilities have doubled their regular nine-to-five schedules and generated new markets for many buyers. The financial recovery was led by the major cities and their 24-hour active setups. However, the new and hip markets can be found in towns like Austin, Nashville or Charlotte, where the cost of living is significantly lower and the growth potential is staggering.
For the following year, this sector will provide its investors with stability, confidence and a greater tolerance to risk. This is due to the moderate cap-rate compression offered by these 18-hour cities and the efficient application of technology that helped investors benefit from all the offerings of a larger urban area at a lower cost.
2. Going back to the suburbs
As the new overly active downtowns are evolving into a magnet for the millennials, industry leaders are setting their sights on the suburbs. It is estimated that Generation Y will have to settle someday as well. However, these new suburbs are very different from the quiet, passive and monotone neighborhoods of their parents. The future suburbs will be concentrated around the large job providers, but complete with all the facilities and excitement that you can find in the downtown area.
3. Rise in employment redesigns office spaces
Since 2014, the employment has risen by over 2.9 million per year. Its growth rate looks just as optimistic for the next year as well. Interviewees are experiencing a change in the way companies are redesigning their offices to accommodate the millennials and their preferences for cool, open spaces where their lifestyle and workflow are intertwined. Even large companies are embracing a startup image by removing the cubicles and by investing in new office spaces outside the city core and closer to the suburban areas.
4. Parking spaces become useless
We live in automobile shaped cities. The whole infrastructure of large urban areas is based on vehicle owners. However, a new trend among the younger generation sketches a haunting impression of a not so distant future where many components of the automobile era will become useless. As a consequence, parking lots will be the frontrunners. In the past 25 years, the number of licensed drivers has decreased 12 percent. More than that, many young people have left the car ownership out of their main priorities. This segment of the population is eagerly awaiting “green” alternatives to the traditional car, and rendering ineffective the huge parking lots and any investments these might attract.
5. Food starts growing in the most unexpected places
A former Newark steel factory is being converted into an indoor vertical farm. This is just another proof that urban property is an endless resource of investment that provides flexibility and constant growth in value. Retailers are constantly looking for sweet spots where restaurants, eco-farms and food stores can be built. This type of enterprise is just another savory dish for the buyers.
6. REITs vs Real estate crowdfunding
The REIT’s market is still the power horse for small time investors who are on the lookout for new and larger rifts between net asset value and share values that could provide them with a hit-and-run jackpot. Next year promises to be a year of such substantial arbitrage opportunities due to the difference of valuation between the stock market and the real estate market for a large number of equities.
Good revenue should come for a small time investor from a solid “A” property, located in an 18-hour market. And this is where the dark horse of the investment competition enters the stage. Minor investments with high rewarding profits should be even more attainable for investors who choose the newly regulated path of crowdfunding. This innovative way of capital raising has recently been adopted into the real estate equity market after years of watchful waiting and modest optimism. Recent reports have shown that the industry attracts more funds through online platforms than ever before and, thus, offering new opportunities to small-time investors that could not afford investing through REIT’s.
Credibility is the key, for the moment, and the lack of substantial success stories keeps many analysts at bay from making any predictions on such a volatile enterprise. However, it is only a matter of time before the investing balance tilts towards crowdfunding, mainly because of the immersion of retail investors into the broader investing community and asset classes.
The REIT sector is one of the healthiest components of the US property industry, with public transactions of over $867 billion as of 31 July 2015. The rise in quality and capital on the REITs market is expected to last for at least two more years, with the imminent ascent of real estate crowdfunding in the background.
Issues to watch
The people at PwC and ULI underline that all the emerging trends in real estate in 2016 are under the influence of regulatory, financial, social and demographic conditions. One of them is the imminent rise of the interest rates, which can disturb an industry that has been consolidated, so far, in a low-interest-rate environment. Also, the industry can easily be influenced by anything, from geopolitical changes on a national scale to severe climate conditions that affect local areas, such as the drought in California.
However, 2016 is expected by many people in the industry with high optimism and the hope of capital increase in real estate, even if it will come at a slower pace than in recent years. One thing is sure: investments in individual niches in a way that preserves the capital will generate a long-term financial growth.
Note: This article originally appeared on HedgeCo.Net with this link http://www.hedgeco.net/blogs/2015/12/14/top-6-real-estate-trends-and-opportunities-that-will-shape-your-business-in-2016-david-drake/ on December 14, 2015
David Drake is the Chairman of LDJ Capital, a multi-family office; Victoria Partners, a 300 family office network; LDJ Real Estate Group and Drake Hospitality Group; and The Soho Loft Media Group with divisions Victoria Global Communications,Times Impact Publications, and The Soho Loft Conferences. Reach him directly at David@LDJCapital.com.