Following these trends could lead to a nice payday for patient investors.
Trends guide us as a society, often influencing where our interest goes and money flows. Following them can lead to superior results for investors, but not every trend is here to stay. Knowing which trends are changing our society and which are backed by long-term demand is what really leads to big paydays. As new trends emerge in the wake of the pandemic, here are three in the real estate sector that are making investors money right now.
The fourth industrial revolution
Author Klaus Schwab has dubbed today’s era the fourth industrial revolution. It’s a time when our technological advances with artificial intelligence (AI), robotics, the internet, 3D printing, genetic engineering, quantum computing, and other technologies become increasingly intertwined with our modern society. These technological advancements are what drive real estate development demand.
Tech companies have certainly taken a hit since the start of 2022, but there is still a lot of opportunity in the world of real estate technology. The metaverse saw a virtual real estate buying frenzy in 2021, while tech companies like Matterport, which creates digital renderings of spaces in the virtual world, or iBuyer Open Door Inc. are revolutionizing where and how real estate can be bought and sold.
Data centers, which help store and compute data for tech-based companies, are experiencing robust growth. Large investment firms and real estate investment trusts (REITs) are picking up smaller data center companies at an incredible pace because they see long-term growth opportunities in this industry.
Industrial real estate is also experiencing record demand and rental growth as limited supply strains the marketplace. Due to supply chain issues, rising inflation, and increased fuel costs, operators are also looking for solutions closer to home, driving demand for industrial space and manufacturing warehouses to record levels. Old facilities are being repurposed or retired for new state-of-the-art facilities to allow for automated warehouses that improve the speed and efficiency of how companies store, fulfill, and distribute goods.
What will last and what will fade in the fourth industrial revolution still hasn’t been concretely defined, but this is certainly a trend that is making investors a lot of money right now.
Great Sun Belt migration
The Sun Belt, which includes the warmer and sunnier southern states across the United States, has seen a slow but steady rise in residents over the past several decades. Since 1950 the Sun Belt has seen its population double. But the past few years, thanks to the global pandemic and the ability to work from home, have caused the Sun Belt to boom. A more favorable year-round climate, ample job opportunities, and a more affordable cost of living are just a few of the factors driving demand in this area.
Increased migration directly translates into higher real estate demand, particularly for housing as the national housing shortage strains real estate and rental values. The cities with the highest year-over-year rental gains were all located in the Sun Belt, while the top eight cities in the Urban Land Institute’s list of the 15 highest-performing real estate markets for real estate growth reside in the Sun Belt.
Residential REITs like Mid-America Apartment Communities, Independence Realty Trust, and Invitation Homes, which are all heavily invested in the Sun Belt, are definitely benefiting from this uptick in demand. Rental rate growth for the companies are in the 9% to 12% range, while occupancy rates are at record lows.
Booming builders
The housing shortage and incredibly low rate of inventory continue to be a dominant real estate trend. The estimated shortage of over 5 million homes means there is a major need for developers to fill the void. Homebuilders are ramping up starts and development of multifamily and single-family homes, but even record-level activity isn’t still bridging the housing shortage gap fast enough.
Headwinds surrounding supply chain issues, increased inflation, higher costs for materials, and lack of qualified workers, as well as inflation, are certainly causing concerns over profitability for developers and homebuilders. While valid, they aren’t issues the companies can’t overcome.
Demand isn’t wavering for homes, and until supply meets demand, which is projected to be around 2028 assuming current levels of development are maintained, that gives investors a several-year run to make a lot of money. Most homebuilding stocks are down significantly right now, making it a good time to take advantage of this real estate trend.
Trends come and go. What is shaping our reality today won’t necessarily be what’s guiding us in the future. These three trends, however, have long-term demand supporting them. Investors on the hunt for worthwhile money-making opportunities should certainly consider these three trends to drive their investment choices.
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