Investors are helping to drive the slow but steady recovery of the real estate market, a fact further validated this week with a report that revealed home prices were up 6.3 percent in October from a year earlier, which was the biggest year-over-year gain in six years.
For investors looking to jump in the real estate arena, Aspen Daily News columnist Bill Small offers a handful of emerging trends that will have an impact on the market moving forward. These include an aging population, increased online retail, the changing demand in office and industrial buildings, and low cap rates, according to Small. Let’s take a quick look at these trends and what impact they will have on real estate investment moving forward.
Small notes with some 70 million Baby Boomers at or nearing retirement, an aging population is likely to lead to dramatic population shifts in some cities and also increase demand for retirement communities. This could be an angle worth exploring for real estate investors.
Online retailing has seen dramatic growth in recent years and that trend is expected to continue and even accelerate in the future. This could lead to major changes in the commercial real estate market. Demand for commercial real estate could decline in coming years as online retailing gains additional market share.
Tied into this somewhat are the changes taking place in demand for office and industrial real estate. Improved technology now allows many employees to work from virtually anywhere. That means many businesses could downsize their office space as the need to house employees decreases.
Finally, Small points out cap rates in many places have reached lows not seen since prior to the last economic meltdown in 2007 and it’s attracting investors. That could eventually pose a problem. As rates make their inevitable rise back to historic levels, values could decline. Small sites the downturns in commercial real estate of the early 1990’s and during the Great Recession as examples of this phenomenon.