“It’s no longer just about the current strength of the market or submarket. We have to be sure that the location will be viable five years from now.”
Real estate investment is not immune to the economic laws of supply and demand; and as more capital flows into the asset class, two main scenarios present themselves. The first is that competition for desired assets increases, driving up prices and lowering returns. The second is that capital begins to look for alternative investments where there is less competition. Emerging Trends in Real Estate 2015 interviewees and survey respondents offered opinions supporting the view that both scenarios are likely to influence the market in 2015.
Real estate investors continue to be willing to pay what either are or quickly will be record prices for assets in the major markets in the United States. The rationale offered by interviewees is that these markets offer a surety of return of capital that can be reproduced only in a limited number of markets across the globe. Global and domestic capital continues to be attracted to these markets. One institutional adviser referred to this as “flight capital.” These investors are interested in making sure their money is placed somewhere that at an undetermined point in the future they or their heirs can be sure they can get it back. Institutional investors looking at balancing risk and return are quick to admit that “there are a lot of great opportunities for real estate investment outside the major markets, but our ability to pursue those investments is limited by the benchmarks that are used to measure our performance.”
This year, interviewees and survey participants reflected a desire to take on a measured amount of new risk in search of higher yields. Two strategies mentioned repeatedly during interviews focused on moving to more opportunistic-style investments in the major markets or in markets close to a major metropolitan area (think New York City boroughs), or looking for the best assets in markets outside of the core major markets. This year’s market rankings reflect the attractiveness of markets for both of these strategies. In addition, the survey results reveal an expanded set of markets that may allow investors to find good investment opportunities outside the traditional 20 to 25 top markets. This year’s interviewees continued a trend that has been expressed over the past several years. “It is important to remember that you can find good opportunities in every market, but it really helps to have the right local partner!”
To help bring out the potential strengths or weaknesses in a wider set of markets, this year’s survey asked participants to rank local markets based on a set of characteristics that can often contribute to investment success, but are less influenced by macroeconomic and demographic factors that tend to favor larger, fast-growing markets. The result is a more robust view of characteristics across a wider range of markets that—when combined with 2015’s emerging trends—could influence where investors choose to look for returns in the coming year.
If you would like to find out how I can help you to find great real estate investment opportunities and build wealth investing on real estate, please call me to setup an appointment for a free advice and consultation at 760-235-9688