Major trends in demographics, technology, and environmental factors could set the path for seismic shifts in real estate. What are these trends that all real estate investors should keep in mind?
Real Estate Trend #1: Increased urbanization
Practically all demographic and population forecasts show that a future net influx into urban markets, leading to many more megacities around the world, including more in the US. According to the UN, 68% of the world’s population will be living in urban areas by 2050.
But where will these megacities emerge? Which existing cities will likely see the most significant growth?
The cities that will see the biggest net migration will also be the likeliest to see a rise in home values and rents as higher population density leads to greater demand for live/work/play real estate.
Real Estate Trend #2: Graying population
As continued medical innovations lead to an ever-aging population, that will lead to changing needs for housing, consumption, employment, and medical care as the 65+ age cohort becomes the fastest growing demographic segment for the next 25 years.
Where are they going to want to live? How will their needs be met?
In certain markets, this will lead to robust growth in the development of hospitals, outpatient care facilities, end of life facilities, and senior friendly retail/housing/entertainment environments.
Real Estate Trend #3: Changing household composition
more and more households are becoming multigenerational as well as getting into shared living situations. A lower homeownership rate creates more renters who will also move more frequently.
This mobility will likely drive demand for self-storage, especially as space continues to become a premium in increasingly densifying urban areas.
Real Estate Trend #4: Postponed millennials
As more delay both marriage and child-rearing due to savings constraints and housing affordability, more will stay renting.
Markets with robust employment outlook that attracts the younger, millennial crowd will continue to see strong fundamentals for multifamily. Look for markets expected to see a net migration of early career movers. Where? Probably 18-hour cities.
Real Estate Trend #5: The growth of 18-hour cities
There is a growing trend of people moving out of the core 24-hour cities (e.g., San Francisco, New York, etc…) to lower cost of living and lower cost of doing business cities like Denver, Austin, Portland, etc…
Space is more affordable here–homebuyers can get more bang for their buck. But they’ll still want to locate near good schools, near transit, and will favor walkable neighborhoods.
Some projections expect TWICE the population and employment growth in 18-hour cities compared to the national avg over the next decade or so.
Even big companies are building new campuses in the suburbs (e.g., Apple building a new campus in Austin). Implications: housing demand, rental growth, and lots of new development to support growing high-income earners in the form of new retail, office, & entertainment.
Real Estate Trend #6: Continued affordable housing shortage
As affordable housing continues to become a hot topic, we’ll start to see cities looking at ways to redensify urban areas through adaptive reuse of obsolete spaces and upzoning existing underutilized spaces and structures. That’s the only way to be able to keep up with an ever-growing population to keep home prices from going into space.
Maybe there will be new forms of living entirely. Residents in the pricier neighborhoods will be willing to accept much smaller spaces (e.g., tiny homes and micro apartments) as well as co-living arrangements.
Previously industrial areas that are no longer fully utilized may be revived and repurposed for affordable housing.
We’ll also see significant innovations in technology and building techniques to lower the cost of construction (e.g., modular, pre-fab, 3D printing)
Real Estate Trend #7: The proliferation of self-driving cars
Most agree that it’s only a matter of when, not if, self-driving cars will reach critical mass and become the norm. What will happen when the cost of owning a car no longer makes sense for the vast majority?
Currently, a significant portion of the most expensive downtown real estate is reserved for parking. Imagine all of that space (estimated to be 7B square feet in the US alone) could be repurposed to higher and better use.
If self-driving cars become the norm, along with a much longer driving range, there could be secondary effects. It could actually hurt self-storage–people no longer need to use their garages for parking cars but can use to store things. It could hurt transit-centric hubs as people no longer needs to stay within walking distance to a train/metro station.
Real Estate Trend #8: The impact of climate change
Insurance companies are already adjusting their premiums to match the risk of flooding in high-risk areas. That means higher insurance premiums (sometimes as much as 3-4x more than only a few years ago). It is estimated that for every $500 increase in insurance premiums, home values will decrease by $10K.
We’re already seeing signs of climate gentrification in some markets in Florida, where previously less desirable neighborhoods away from the coastline are now seeing significantly more growth due to their higher grounds. We will see a shift of the premiums going away from the coastlines to the high grounds.
Real Estate Trend #9: Continued growth of eCommerce
With Amazon becoming just the second company in history to reach the $1 trillion in market cap, overall eCommerce surprisingly still only made up about 10% of all retail sales in 2018. But, it’s expected to continue to gain ground for the
As eCommerce continues to grow due to more people shopping more often online and expecting more options–faster delivery, easier returns, always in stock, etc…–we will start to see retailers and logistics move towards what is called “last mile” logistics to meet these tougher consumer demands.
Formerly obsolete smaller warehouses that were too small for the large centralized distribution models may come back into style to get the goods closer to the buyers. There may be an opportunity to turn dying shopping malls into last mile logistics warehouses or mixed-use logistics and lifestyle hubs.
It’s debatable how and when each of these trends may or may not play out. But for the ones you have the most confidence in, you can use that to help you narrow your choices of markets, assets, and investment plays to take advantage.
What trends would you put your money behind? What trends would you add to this list?
6/9/2020
This post needs to be updated for Covid-19
and the collateral damage it caused.
Working on a separate post just to cover that. 🙂