It’s true that real estate moves in cycles, and we are all looking to the forecasted trends and themes for the months ahead. But savvy investors need to look beyond the micro-market movements, and instead focus on the long-term horizon. Look at the big picture: that’s where the real growth and value are found.
We’re in the midst of transformational changes, so being ahead of the curve will pay off. Here are five big themes in real estate to keep a watchful eye on in the coming decade.
A Shift in Demographics
The wave of retiring Baby Boomers is already here and will continue growing over the next 10 years. Many will make the move to warmer climates, shifting population trends in low-tax states in the South and Southwest. Retirees tend to look for dynamic amenities in their living environments, like on-call doctors and active-life communities that specialize in wellness programs and social activities.
Not only that, working-age populations (Millennials in particular) are moving to more affordable regions like the South or states with no income tax. This is largely in part to new work-from-home trends resulting from the pandemic.
Expect southern regions and the Southwest to outpace the growth of northern states or larger metropolis areas like San Francisco, Chicago, and New York City.
Rising Rental Demand
Additionally, Millennials are marrying and having children at slower rates than previous generations, and homeownership rates within this demographic still remain relatively low. Thanks to the high cost (and intense competition) of homeownership on top of unprecedented student loan debt, multifamily housing demand will continue to grow. Closely following in their footsteps, Gen Z still now leaving home and entering the workforce, propelling the rental demand forward.
Need for Self-Storage
From downsizing to increased urbanization, more people are using storage facilities. For the same reasons more people are renting, they’re also using self-storage facilities to supplement the space they don’t have at home.
Explosion of E-Commerce
Stay-at-home orders and looming health concerns drastically accelerated e-commerce growth over the past two years, and we don’t predict that this trend toward online shopping will lose any traction in our “new normal.”
A byproduct of this booming e-commerce industry, industrial real estate is enjoying major growth—and investors are enjoying outsized returns. Businesses are thinking about their warehousing needs and supply chains in transformational ways, driving more onshore manufacturing and distribution and thus requiring additional real estate for their operations.
As you can imagine, the retail experience is also rapidly changing. As the online experience gains popularity, brick-and-mortar stores will either be repurposed or reimagined. We’re already seeing retail experiences coming back to life with a blend of e-commerce and instant availability.
Technology advances and the pandemic appear to have completely redefined the needs of office workers, and it may be years before we understand the permanent changes. Interestingly, this reset is not all bad news for office real estate. We may see smaller, less centralized offices, but it’s too soon to know for sure.
What we do know is that change is coming, and that offices are not going away. They’re just becoming more multi-functional.
BONUS: Manufactured Housing
Single-family, stick-built housing continues to be extremely expensive and inaccessible for many, but there is a new-ish kid on the block: high-quality prefabricated homes. Potential homeowners see these as an affordable way to fill the gap between renting and owning.
Prefab homes have come a long way, and demand for modern, stylish designs are high. As such, a lot of the stigma around this type of housing is getting pushed to the wayside. We may even see the creation of new amenity-rich prefab parks in the next decade.
Remember that the market is cyclical, influenced by institutional investors moving in and out of positions and sentiments. At Cira Capital Group, our investment thesis is to focus on long-term trends, major economic themes, overall market dynamics, and demographic shifts as opposed to short-term trends or the current hype. This strategy has allowed us to survive the market lows and thrive on the highs.
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