The Future of Real Estate

Disclosure: This article does not constitute investment advice, recommendations, or promotion of any particular security, asset class, or investment. This article merely discusses general trends that may or may not be interesting to the real estate sector. You should consult qualified advisers, accountants, and legal counsel before ever considering a real estate investment.

Introduction

Real estate has been hot for a long time. In our current era of cheap credit and global expansion, owning and developing land has been big business. It has become part of our established culture. Individual homeowners invest in real estate with appreciation expectations and have done quite well. And professional real estate agents, developers, financiers, and others have done quite well themselves.

When we think about the last 20 years, what has performed really well?

• Individual homes have increased. The story changes by geography but residential real estate has appreciated substantially. Go to years before 2000 and the appreciation is even greater.

http://www.imf.org/external/research/housing/

• Urban development has been huge. People around the world continue migrating to city centers for work purposes. And with that, we’ve seen booms in every aspect of urban development: accommodation, shopping, office space, and more. City centers become increasingly large luxury markets and its periphery experiences rapid growth for job seekers. Look at the largest global cities (but don’t forget major business center development like San Francisco, Sydney, Singapore, Dubai, and more)…

http://www.prb.org/Publications/Lesson-Plans/HumanPopulation/Urbanization.aspx

• Airbnb has helped develop an entirely new market segment that is accessible to anyone. Short-term rental markets are one of the biggest growth stories in history. Airbnb went from startup to the biggest accommodation company in the world in less than 10 years.
• Hotel occupancy hovers at outstanding rates despite the short-term rental market’s growth. This varies by geography but data suggests record highs across many major markets. This is consistent with statistics showing tourism and business travel at strong growth rates.

Real estate has been a good sector for many years. The real estate bust in 2007 provided a scare but prices have recovered in many areas. Individuals also get involved in various other investment types: renovating and flipping homes, purchasing investment properties for rent, or using Airbnb to grow a side business.

Looking Forward

The question is what will real estate trends we will see over the coming 10–20 years? Which sectors will be hot and which will not?

There is no way to predict this for sure. But we can look at certain trends and offer a few predictions. As our disclaimer says, this is not investment advice. Determine this for yourself, as everyone’s opinions and situation are different.

But these are the real estate topics I’m personally exploring (and why)…

1) The Modern Accommodation. While the hotel industry has performed admirably, there is a lot of room for improvement. Hotels haven’t innovated like many other industries. And that’s where I’m personally investing a lot of time/attention.

What do I mean by “Modern Accommodation”? It’s basically how hotels and other accommodation types can offer more modern amenities for an affordable price. This includes better technology, expanded services, and better business management. And it means targeting modern demographics to deliver the customer experience they seek.

2) Short-term rentals. I already mentioned this sector as a high growth area. However, I think we’re only at the beginning of seeing success in this real estate sector. Consider:

• There aren’t many real estate funds to invest in this sector. Statistics show the vast majority of rentals are owned and operated by “mom and pop” shops. As professional investors are drawn to this sector and bring the bigger money, we’ll see significant expansion here. Think about how much money are in hotels (because big investors fund it). Now imagine investing in large condo buildings for the same purpose. Expansion will be significant here.
• Short-term rentals are big for tourism today. But might we see a shift away from 12 month leases and toward more flexible rental structures? I believe we will. People are more mobile than ever before. They don’t want to sign long commitments. I believe we’ll see an expansion of short leases and furnished properties. It may not be popular with older demographics but will change as millennials gain more purchasing power.
• Business travelers overwhelmingly stay in hotels. Why? Corporations usually sign special deals with hotel companies due to the volume of travel they bring. But I believe we’ll increasingly see travelers choose short-term rentals. This is especially true if larger companies start operating such properties (and can offer similar incentives). This can be a huge boom for the short-term rental market. Business travelers are some of the most reliable segments for hotels.
• Regulations haven’t really addressed the short-term rental market. It’s simply too new. This has deterred a lot of investment, as people fear jurisdictions will make regulatory compliance too difficult or expensive. As governments remove the ambiguity, look for investment to grow. And if the area becomes over-regulated, it favors the larger investor. They can afford to handle higher regulatory costs. Likewise, high regulation restricts supply, prices increase. This can be favorable for the savvy investor.

3) Aged care. Around the world, demographics show we’re aging as a society. Don’t underestimate the power of demographics on real estate success. All the people demanding big residential homes, shopping centers, office space, etc will change their buying habits as they age. And since we’re aging at a macro level, more money will be congregated among people in retirement age.

So what does this mean for real estate? Investing in aged care facilities will likely grow in demand. This means retirement homes, health facilities, and businesses that cater toward an older demographic. Developers ought to take notice.

This is a trend that will depend on one’s specific geography. Every geography has different demographics and different facilities currently available to cater toward them. But it’s a good trend for investors to examine.

4) Leisure. For this category, you need to look at the technology changes on the horizon. Here are a few facts to consider:

• AI is primed to automate many procedural and transactional jobs. Many forecasters assume that 40% of current jobs many be automated in the next decade. I would tend to agree that automation will have a big impact on our work and lifestyle. Although I believe the economy will shift a bit. Jobs will be re-created in a different field: leisure activities. We have actually already seen this at work. Look at all the jobs being created in tourism, food/drink, and other entertainment fields. As automation accelerates, so will demand for these things. If we work less hours, then we will spend more time doing recreational activities. Which means leisure is going to be bigger than ever before. For real estate, this means we need to start considering how to structure facilities for these activities. Restaurants, bars, parks, gyms, exercise studios, sporting facilities, theaters, and more are primed to grow in demand.
• Virtual reality is probably going to have the biggest impact on our lifestyle. Most think of virtual reality as a glorified gaming system. That’s exactly what we thought of PCs not so long ago. Then the technology improved and influenced our lives in amazing ways. Computers are irreplaceable. Virtual reality is primed to follow a similar path. It’s only on its first release. Like PCs did, the technology, software, and use cases will grow exponentially in the next decade. I’d encourage you to visit another of my websites where I talk about virtual reality and where I expect it to go. I talk all about why individual consumers, businesses, and investors should be paying close attention to this industry. It will change the world bigger than anything. LINK — RT Virtual Reality. What does this mean for real estate? I write about how VR will impact many traditional businesses on this Medium account. Take a look, as it’s important in real estate and many other aspects of life.
• Autonomous vehicles. We are not far away from transportation radically changing. Gone will be the days where every household owns 2 cars and we sit in rush hour. Self-driving vehicles will eliminate the need for this. Delivery drones will reduce the need for many cars on the road. A smart city that better regulates traffic will clear congestion. And look at all the projects Elon Musk is working on. He’s digging underground commuter tunnels and building rockets that can transport us anywhere in the world in under an hour. This means we’ll spend less time using transportation. Our spending habits will adjust. How does this affect real estate? I mentioned urbanization earlier. Might this be the technology that reverses that trend? Maybe. Maybe we can get to work from longer distances much quicker than today. Maybe we won’t need logistical centers around big urban areas. Maybe we will be able to do more of our work remotely. VR/AR, automation, and other tech advances will facilitate that. Not that urban areas will become bad investments. But consider how these technology trends will impact where we live/work. We might see some adjustments that impact real estate demand.
• Biotechnology. Ask anyone involved in the health sector and they’ll tell you we’re on the cusp of living longer lives. Biotech advances have already helped treat many bad diseases and conditions. But as we learn more about our body through big data and as we have better technology to diagnose/treat illness, major advances are likely. These advances are possible in our current generation. What if life expectancy goes from ~80 to ~100? The societal impact will be huge. We’ll work longer, spend more of our life at advanced ages, and population trends will change greatly. Remember what I said about aged care. Biotech advances might exasperate those trends. And it might contribute to various others. It’s a hard one to predict. But still worthy of consideration.
• Internet of Things / Robotics. The “smart home”, “smart office” and “smart city” are all around the corner. What happens when all aspects of a building are connected. This has huge real estate implications. Developers will need to be cutting-edge on such technology. This creates outstanding opportunity for those that understand it. We’ll inevitably see a boom in demand for high-tech real estate. This means the electric, plumbing, heating/cooling, appliances, and other aspects of the building and its use. Those in the real estate sector need to pay attention and stay competitive.
• 3D printing. Construction may change substantially if we can 3D print household items, aspects of a building, and possibly the entire thing. The entire cost and timeline assumptions of development would change. If you haven’t seen this video, check it out…

• Green technology. This has grown substantially in recent years. There is a large demand for sustainable and clean technology in today’s world. While it’s not a requirement, it’s a nice selling point for various businesses. Those in the real estate industry should take notice and decide if this can be helpful.

5) Developing markets. This one is nothing new for real estate experts. You always want to find the next hot market. And the markets that were hot over the last 20 years will probably be different than the next generation.

As someone that travels frequently, I’m always on the lookout for places likely to see real estate booms. What do I look for? Growing economic activity. Stability. A good regulatory environment. The potential to draw investment. The potential to draw increased tourism. Supply and prices.

I see it in various locations around the world. We’ll see if these markets eventually realize their potential! If you’re interested in talking about high potential markets, I’d love to discuss. Go to my site at Modern Accommodation Group

6) Overbuilt areas. Based on some of the topics we’ve discussed, there are certain real estate segments I believe are overbuilt. What does that mean? It just means that future times might see less demand than past times. A few of the segments I see contracting (or having declining growth rates):

• Retailers. Why will this decline? It comes down to two factors. First, interest rates have been at record lows for a long time. This mathematically can’t continue forever. We over-built and over-invested in many areas. We already see some distress in various areas. Second, tech trends don’t help. Amazon and other online retailers are already taking share from brick and mortar businesses. That will accelerate as they get into new markets and as virtual reality allows you to create virtual stores. Automated delivery makes this even more likely.
• Offices. As I’ve said, the need for a fixed office space will decline. We can do more work remotely and that will accelerate with virtual/augmented reality advances. We’re also seeing a trend toward more flexible office space. Developments relying on long-term lease models might find difficulty.
• High credit markets. When you examine certain geographies, it’s a bit shocking the level of credit used for real estate. Homeowners with negative net worth and negative equity. Businesses that rely on low interest rates and credit lines to stay in business. As a society, we’re in for a big credit reckoning some day and it will hit real estate hard. If you’re getting into real estate with a long-term horizon, you have to look at credit sustainability. It fuels many markets and can’t do this forever. Fundamentals win on a long-term horizon. What markets am I talking about? Sydney, Vancouver, San Francisco are large and well-known examples. However, they are far from the only example. Look at UBS Global Real Estate Bubble Index…

https://www.ubs.com/global/en/wealth-management/chief-investment-office/features/global-real-estate-bubble-index-2017.html

Concluding

As I mentioned, these are the real estate trends I am looking at and how I interpret them. Others may feel differently. It’s up to you in deciding.

When it comes to real estate’s future, we should all have our own perspective. It helps us make good decisions in terms of housing, careers, investment, and credit.

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