Real Estate Investing Basics

5 Real Estate Trends That Will Impact Investments in 2020

Expertise:
1 Article Written
real-estate-trends

Many individuals have discovered the numerous benefits of investing in real estate—most notably, diversification into a dependable asset class that provides steady return on investment from rental income in the face of market volatility.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Like the U.S. economy in general, real estate has been in a very long growth period. As we move into the next phase of the economic cycle, several real estate trends are emerging that will affect investments in this sector. As one of the nation’s leading direct investment online real estate platforms, we highlight below the real estate trends we see as most impactful for investors in 2020:

1. Increased Adoption of Technology

While the real estate industry has typically been slow to adapt to advances in technology, in the last few years the market has more readily embraced high-tech systems and products. This trend will escalate in 2020.

From virtual reality tours of office space to voice-activated technology in apartment living to the internet of things (IoT) in building design and development, technology continues to disrupt real estate—in a good way. Building systems management, blockchain, and artificial intelligence will further accelerate the use of technology in all areas of the industry and create new opportunities for growth and investment.

Related: 7 Ways Technology is Completely Overhauling Property Management

The way people buy real estate is also changing, with direct investing using online platforms like RealCrowd becoming increasingly prominent as investors demand higher levels of transparency, convenience, and timeliness in their transactions.

In 2020, expect direct investing to become even more investor-focused and diverse, providing educational articles and webinars, access to advisory services, and a broader range of offerings to help investors achieve their wealth-building and preservation goals.

Regardless of how much or how quickly digital processes are adapted by real estate companies, there will always be a need for the human touch in this industry. Companies that provide smart investment advice, go the extra mile with service, and interpret data will be especially in demand in the coming year as we navigate through the economic cycle.

2. Accelerated Investment in Secondary Markets

There once was a time when real estate buyers focused on the top-10 primary markets for investing, including such big cities as Los Angeles, New York, San Francisco, Chicago, Boston, and Washington D.C.

As more people in the U.S. and abroad have realized the advantages of real estate investment, those markets have become oversaturated with many interested buyers chasing a limited number of properties for sale. Smaller investors have looked elsewhere for their real estate purchases, seeking deals in secondary and tertiary markets where there is less competition with institutional and foreign investment capital.

In 2020, we expect to see more investment in these markets, including Austin, Raleigh/Durham, Charlotte, Nashville, Orlando, and Atlanta. Other emerging markets include Tampa/St. Petersburg, Northern Virginia, Brooklyn, Indianapolis, Charleston, and Portland, Oregon, among many others.

We are noting a trend of increased direct investment into strong growth markets throughout the country on our RealCrowd platform. Regions with job and population growth, strong transportation infrastructure, and prominent educational institutions are likely to spark the most investor interest.

Seeking Out the Suburbs

suburb-coffee-shop

Another geographical shift we are noticing is the growth of “hipsturbia,” a move by both younger and older generations alike away from cities toward “cool” suburbs that emulate urban living. The cities have with, 24-hour downtowns and walkable environments in which people can live, work, and play.

As cities become more expensive and packed with residents, workers, and visitors, we anticipate increased real estate investment activity in these suburban nodes, which can accommodate this trend of outmigration.

3. Investment in Alternative Property Types

While many investors are aware of the “four main food groups” of real estate asset classes—office, industrial, retail, and multifamily—a host of alternative categories are gaining ground as buyers seek a less-crowded arena and greater returns or yield on their investments.

A few of the real estate property types that are expected to garner more interest from investors in 2020 are data centers, self-storage, senior housing, medical office, manufactured housing, and co-living.

Data centers, which house essential components of IT infrastructure, are generating high demand, and the emergence of powerful 5G technology is likely to further increase this need. As a society we will only become more dependent on technology and the data that drives it, which underscores continued future demand for an increase in data center investments.

Investing in the Sharing Economy

Demand for senior housing is also on the upswing as the population ages and seniors move to specialized residential communities, many of which offer activities, a social network, and health-and-wellness services. RealCrowd has seen an uptick in sponsors on our direct investment platform focused on senior housing investment in development in the past few years, and we expect this trend to continue.

With a decrease in home affordability, manufactured housing and co-living are viable alternatives to those who may be priced out of the traditional housing market. Also, a shortage of construction labor and rising construction costs are giving these sectors fresh appeal for developers. Manufactured housing offers investors a much less traveled option with the potential for strong returns, while co-living offers residents a dramatically reduced cost of housing while also maximizing the potential for investor return.

Related: Here’s Why You Should Consider Investing in Senior Living

4. Increased Emphasis on Green Buildings

energy-efficient-building

Like elsewhere in society, sustainability has become a topic of concern in the real estate sector. As environmental and social governance (ESG) becomes a key factor in tenants’ and real estate investors’ decisions, developers, owners, and property managers are increasingly instituting green principles in the development and management of properties.

In embracing ecologically sound methodologies, stakeholders are discovering additional upsides, including reduced utility costs and industry certifications that make a difference for investors and tenants, such as LEED certification from the U.S. Green Building Council, which is awarded to properties that meet certain strict environmental criteria.

As the real estate industry adapts more climate-friendly policies in 2020 and beyond, investment in properties that place a high priority on sustainable principles will generate more interest from investors.

5. A Greater Sense of Community

A trend toward communal living, working, and recreating is emerging and expected to deepen in 2020.

The popularity of apartment rooftop decks, office co-working space, event-filled public gathering spaces, and mixed-use properties (combining office space with residential, retail, and other uses) demonstrates that people want to be together. City planners and developers are inventing new ways to provide this collaborative engagement in the built environment, and investors are supporting it.

The rise of community is also evident in investment vehicles like crowdfunding, in which many investors buy small shares of ownership in a property. As crowdfunding continues to attract the attention of a broad group of individual investors, direct investment platforms like RealCrowd provide an opportunity to invest with a community of like-minded investors.

In Conclusion

As the current economic cycle matures, real estate continues to be a smart alternative for investors looking to diversify their portfolios. Keeping an eye on real estate trends including increased integration of technology; rising investment in alternative markets and property types; properties and processes that integrate green principles, and a burgeoning sense of community will help guide investors toward more profitable real estate purchases.

ad-ultimate-beginners-guide

Have you noticed any of these trends taking off, and what other trends do you see impacting 2020?

Share with a comment below!

Adam Hooper is the founder and CEO of RealCrowd, an online real estate equity marketplace that has brought its members access to $5.5 billion of investment opportunities. Founded in 2013, RealCrowd is a Y Combinator backed company that has grown to be the leader in the real estate crowdfunding space. RealCrowd operates as a direct investment marketplace, where investors participate directly in the underlying asset, rather than a platform-sponsored entity. This benefits investors by increasing efficiency, transparency and most importantly, reducing fees and layers of middlemen. Adam is also the founder and CEO of ReAllocate, an innovative fintech platform serving independent investment advisors. The platform helps RIAs provide access to professionally managed direct real estate investments via its risk-based Allocation Intelligence (AI) platform. Prior to founding RealCrowd and ReAllocate, Adam was a partner at a leading real estate capital markets firm where he was involved in over $1 billion of transactions sourcing and structuring joint venture equity investments. In the commercial real estate business since 2004, he has been involved in launching three prior national platforms for investment sales and brokerage, as well as institutional joint venture equity investments.

    Wenda Kennedy JD from Nikiski, Alaska
    Replied 8 days ago
    I also see a lot more renters in the market versus homeowners. The recent change in the income tax structuring is causing a lot of people not to be able to take the mortgage interest and property tax deductions. That change puts renting and homeownership head to head. With more renters in the market, that will change the investment opportunities in the single-family, small unit and manufactured home segments of the RE market. It will create a whole new class of RE investors who specialize in those renters. And the effects are far-reaching. If the tipping point of rentals versus homeowners is reached in a neighborhood, that factor can and will suppress housing prices. The RE investor buys by the numbers. Homeowners buy with their hearts. Another factor is the further future. Usually, a home is a person's biggest investment. If these renters continue renting throughout their adult lives, they won't have a paid-off home for their retirement years. And that whole other rental market in the future. And that's the bigger trend that I am seeing.
    Adam Hooper Financial Advisor from Portland, OR
    Replied 3 days ago
    Wenda - great points. We recently did a podcast with Ivy Zelman where we dug pretty deep into the future of the housing market. Might be worth a listen! https://www.realcrowd.com/blog/2019/06/podcast-breaking-down-the-housing-market-with-ivy-zelman/
    John Culotta Investor from Caldwell, ID
    Replied 6 days ago
    Great article Adam and I agree. These trends are definitely outside the box of traditional REI and should be moving us to diversify and adapt our portfolios. Thanks!
    Adam Hooper Financial Advisor from Portland, OR
    Replied 3 days ago
    Thanks John, lots of options out there now that investors have access across the board!
    Vaughn K. from Seattle, WA
    Replied 5 days ago
    The other stuff all seems pretty on point too, but as somebody who has suffered through living in a major "trendy" city for a decade in a half, I've been waiting for #2 to finally kick off! I figured out that that trend would be inevitable some years back... And I myself finally decided to get out of the big city in the next year or two, and have just been waiting for everybody else to figure it out too.

    The fact is major cities have never been less affordable than they are now... Ever. When the highest paid, educated, white collar people in the US can't even buy a 3 bedroom starter house in the city they work in, that's a problem. Many of them are also spiraling back into the crime problems that drove people out of them in the 60s. It was only a matter of time before more people decided that paying 60% of their income for rent didn't make sense. My only regret is that I didn't do it 10 years ago!

    The one thing that I hope gets sorted out is good job opportunities... There was a major trend the last decade or two of big companies concentrating almost all their jobs into just a few major metros... This wasn't the case in decades past, they were spread more around the country and in secondary mid sized/major cities, but it became a thing to cram everything into a few coastal cities. This is the main reason costs have been so exacerbated. There FINALLY seems to be a reversal of this trend with everybody from tech companies to finance choosing lower cost of living, but still pretty major, cities for new jobs. If the 6 figure jobs would spread themselves around even just a little bit more geographically everyone's standard of living and quality of life could go up tremendously. Even just throwing in offices in suburbs of the major coastal areas, instead of right downtown, could dramatically reduce issues like traffic, property prices, etc.

    I really hope this trend kicks off proper because it would be nothing but a boon for everybody... It would be a pressure relief valve for the overheating in trendy coastal markets, AND it could bring a much needed influx of money and vitality to the 2nd tier cities that are struggling now. I'm keeping my fingers crossed!
    Adam Hooper Financial Advisor from Portland, OR
    Replied 3 days ago
    Vaughn - you bring up a really good point of the mobility that technology provides a lot of today's workers. We've definitely seen a fair share of employment migration away from the core cities, more remote workers that want to live where they want to live, not where they have to work. I don't think this trend is likely to reverse in the near future given our reliance on tech!
    Vaughn K. from Seattle, WA
    Replied 3 days ago
    That's been one of the most frustrating things about what has happened to SF, Seattle, Boston, etc... Technology made big tech companies more able to have a dispersed work force than EVER before in history... Yet they concentrated their workforce into a few cities more heavily than almost any other industry in history. The results were not good...

    It has literally destroyed the quality of life for their own employees and everybody else in those "tech cities" they decided were the bees knees. Not only are they all completely affordable for "normal" educated people with fairly decent jobs (teachers, accountants, etc), but their own workers have vastly lower standards of living there than they would have 10-20 years ago too. It's been bad across the board for everybody.

    Big tech seems to be announcing one new campus after another in pretty diverse locations. Chicago is finally getting tech jobs, Pittsburgh, Atlanta, several Texas cities, and probably plenty I haven't even heard of. This is a great thing, even if a bit later than it should have been.

    If the tech wealth wasn't all being spent on inflating cost of living in a half dozen cities it could bring A LOT of prosperity to the USA, and to the tech workers themselves. You know how nice it is to make $125K a year in Pittsburgh vs SF??? Livin' large vs still living like a college student!

    But truly remote work opens up the possibilities even more. I imagine Small Town USA might benefit quite a bit from having a few remote Google employees living there who decided they wanted to live on 10 acres instead of in a 400 square foot studio for twice the cost! So it will be interesting to see how it all plays out. If these companies would stop being idiots there is SO MUCH potential to do great things for the country.
    Mark Franks Rental Property Investor from Hudson County, NJ
    Replied 3 days ago
    Great article Adam. I've been noticing a trend for price increases in the "hipsturbia" areas like you mention. I see the appeal and have put my feet in the water investing in those areas. I hope they'll grow but if not, it continues to be a great place for blue collar workers.