The remainder of the year is brimming with opportunity, and U.S. Trust, part of Bank of America's (NYSE:BAC) private wealth management sector, wants investors to know exactly where to look.
In its Specialty Asset Management Outlook for 2014, U.S. Trust notes a brightening economy, improvements in the housing sector, and the burgeoning U.S. energy market have markedly increased the attractiveness of nonfinancial assets – particularly land.
Wood products and commercial space will be in demand
Of the five areas U.S Trust analysts see as prime investment opportunities, land dominates the list. The recovering housing market will drive a rising demand for timber, but other markets, such as pulp and paper, and the biomass energy sector, are likely to cause increased competition for wood products. The report notes timber losses in Canada caused by the mountain pine beetle should make U.S. timberland very attractive.
Commercial real estate, particularly in the industrial and office segments, is looking up as businesses begin to situate themselves ahead of the coming economic expansion. E-commerce is huge, as these companies demand large warehouse-type spaces of 500,000 square feet or more. In markets where space is constrained, rents are expected to rise as the year progresses.
The tech and energy sectors are also gearing up, and office space landlords specializing in those types of tenants have been able to raise rents over the past year, a trend that shows no signs of slowing this year.
Farmland prices to grow investor-friendly again
Between 2012 and 2013, approximately 70% of farmland was purchased by farmers – often, at a high premium. Flush with extra cash from high commodity prices, farmers added copiously to their holdings, squeezing out investors.
With crop prices moderating this year, however, analysts predict farmers will be less amenable to purchasing more farmland. With commodity prices coming down from the highs seen over the past year or so, money is tighter, and the accompanying land grab is likely over. Prices will probably fall, which will make farmland more attractive to investors and land speculators.
The long-term view
As the report notes, long-term, non-financial assets such as these not only provide portfolio diversification, but are also poised to do well as the economy – both domestic and global – continues to gain strength. This makes perfect sense; after all, a brightening economy and emerging markets are sure to require more use of the world's energy products, impacting timberland and farmland assets. Burgeoning populations also demand more food, making cropland more valuable.
Population growth means more need for housing, as well. Though the report notes the increase in multi-family construction could slow rent growth and increase vacancy rates this year, the need for such housing seems to still exist.
Multi-family units are just now catching up to demand, having been suppressed during the housing boom, when single-family homes took priority. Many baby boomers are selling their homes and looking for apartment-sized dwellings. Many apartment complexes being built can easily be sold off as condominiums, which would appeal to retired persons, or smaller families.
Forward-looking reports like this one are great for any type of investor, since gathering intelligence about future trends is a large part of investing wisely. And, even though this particular note was prepared for well-heeled clients, there are tidbits within that can be of great use to everyday investors, too.