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It’s hard predicting the future. As Yogi Berra eloquently said, "It's tough to make predictions, especially about the future." But as real estate investors, we do need to be forward thinkers, keeping an eye on trends, headwinds, tailwinds, and housing market signals.
The future of our industry is certainly a bright one, including advances in technology, a shift in tenant preferences, and a rejigging of the legacy intermediaries in the high-friction process of the real estate transaction. What follows is an overview of the future of real estate investing, what trends investors should keep an eye on, and how best to optimize for the future of real estate.
The rise of the secondary real estate market
The future of real estate will be characterized by a rise in secondary and tertiary markets. Even prior to the pandemic, people were looking for more affordable housing options in light of rising real estate asset prices broadly over the past few years.
This interest in smaller markets was certainly exacerbated by the pandemic; however, it was already a trend underway. Conducting a housing market analysis of these smaller towns is even more critical than ever to ensure we as investors are still making wise acquisitions.
Secondary and tertiary housing markets are appealing not only because they have broadly seen positive inward migration, but the supply of purpose-built rental accommodation is typically lower, as are asset prices. Further, smaller markets are also appealing to tenants who can work from home as these markets are generally more affordable than urban centers.
Another trend that was increasing even prior to the COVID 19 pandemic was the desire to work from home (WFH). The tendency toward remote and flexible work is an excellent opportunity for savvy investors to accommodate WFH tenants with new and renewed amenities in residential real estate.
WFH tenants will be a big part of the future of real estate, as developers and landlords will seek to adapt their spaces to this consumer demand. Better office and meeting spaces, faster internet, and increased and optimized outdoor spaces are all ways that real estate spaces will change.
WFH tenants will be spending much more time inside the property. This means more wear-and-tear on units and ultimately more of an emphasis on maintenance. WFH tenants also will be driving less, meaning fewer parking spaces will be needed in the future of real estate.
The future of real estate is technology
Technological innovation in the real estate industry is being compounded every year. The new real estate tech and digital services available are promising and should be explored by all investors. The future of real estate is certainly a technology-heavy one. Here are a few niches to keep an eye on.
Smart Homes: Investors will double down on a new wave of smarter home devices that will improve safety, utility expenses, and environmental sustainability. A rental property with smart- home devices will also be more appealing to a technology-savvy renter demographic.
Automation: Automating processes and tasks will become increasingly popular in the future of real estate. Financial reconciliation, rent payments, and maintenance checks through smart devices are only the beginning as more complex processes such as closing and underwriting are also becoming more automated.
Construction: There are already a number of startups disrupting the construction industry. These include material science, prefabrication technology, construction automation, modular buildings, and 3D modelling.
Blockchain Technology: A digital ledger can act as an official record for many aspects of real estate, including leasing, transactions, and legal title. There are several tech startups working on these types of platforms, which will reduce the need for traditional industry intermediaries.
The future of real estate has fewer intermediaries
The result of better technology is a rise in digital platforms, which will change the traditional brokers in real estate -- yes, this means the real estate agent, broker, and brokerages. If the rise of iBuying wasn’t enough, a legacy real estate professional will need to innovate to remain competitive and relevant in the coming decade.
Airbnb reduced the need for traditional travel agents, Uber changed how the taxi industry operates, Amazon disrupted traditional retail operations, and the list goes on. There are significant property technology (referred to as "proptech") advances that aim to disrupt all traditional intermediaries in real estate.
The closing process, finding tenants, buying and selling properties, legal paperwork, property maintenance, and so on will all require less human touch and rely more on digital platforms and technology to operate. In the future of real estate, connecting a buyer and seller through technology will only get easier.
If you’re currently a real estate professional who is an intermediary, you’ll need to adjust your technology game rapidly to remain competitive.
The future of real estate is accessible
Along with the rise in digital platforms on the service side, the future of real estate will see a continuation of the dramatic increase in accessibility of real estate investment vehicles in the coming years.
REITs: More than ever, Real Estate Investment Trusts (REITs) are booming and give a real estate investor the opportunity to invest in proven real estate businesses in specific industry niches. For instance, if you want to gain exposure to commercial real estate assets in the warehousing industry, then you can directly invest in REITs like EastGroup Properties (NYSE: EGP). Or, if you are bullish on data centers, you don’t need to spend millions of dollars opening one yourself, you can invest directly in a proven business like Equinix, Inc. (NASDAQ: EQUIX) or QTS Realty Trust (NYSE: QTS).
Investing at a distance: The future of real estate powered by technology is one where more and more investors can invest at a distance. By no means the only one, platforms like Roofstock offer turnkey manage-at-a-distance services for investors who want to explore different markets.
Investment platforms: Similarly, digital platforms like Fundrise give investors digital access to a myriad of vetted real estate syndications. We are seeing more platforms like Fundrise come online, giving investors more options on where to invest their capital.
Accessibility to real estate investments has been increasing over the years and will continue to in the foreseeable future.
The bottom line
Real estate is a legacy industry. This means it’s slow to change and innovate. The pandemic has fast-tracked many industry changes that were already underway, including remote work, technology adoption, and the rise of smaller real estate markets.
The future of real estate is a bright one and includes many advances that will improve how we as investors operate our businesses and deploy our investment strategies. The risk lies in not acknowledging and preparing for these trends, thus getting disrupted and left behind.
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