As the end of the year approaches, analysts are beginning to engage in one of their favorite activities: prognostication. Their forecasts are useful for investors and enjoyable to read. So, as we head into 2019, let’s take a look at buying income property through the eyes of the experts in the real estate investment market.
Buying Income Property: Where and What
A year ago, the authors of PwC and Urban Land Institute’s authoritative Emerging Trends in Real Estate report saw changes coming in the multifamily market. The market was reaching the peak of its cycle and the focus of activity had shifted from city centers to outskirts; secondary markets gained primacy over the gateway markets. One big surprise for the year is that the multifamily market continues to expand.
Even with multifamily holding its own, the market will evolve in 2019. The PwC-ULI report for 2019 notes particularly that the high employment rate has led to a shortage of construction labor in several regions. This shortage is expected to grow more acute. According to the report: “Remaining expectations or hopes that immigration would somehow reinfuse America’s job sites with a reliable stream of predictable, lower-cost semi-skilled laborers in the next five years have largely disappeared.” The authors believe that trend will encourage new technologies (automation in the construction process), but they expect to see a decrease in repositioning to come from it as greater expenses choke off profit margins.
Aside from those considerations, one important question in 2019 is: How does multifamily compare with other investment real estate types? Single-family development is expected to continue at a pace below its 20-year average as the single-family market continues to move sluggishly in response to homeowner’s reluctance to move. These are positive signs for the multifamily market. The authors of the report warn, however, that investors will have to work to retain well-heeled millennial tenants and retirees who make up this new class of renters. The report discusses the importance of new technology for retaining residents at length.
The lackluster office market is not expected to pick up noticeably, despite the healthy economy. The office market has been struggling to keep up with new technologies that place heavy demands on building infrastructure. Much of the new office development is shifting to the suburbs along with multifamily development, creating mixed-use developments that allow lifestyle-conscious millennials to work and play close to home.
The industrial real estate market, particularly warehouses, is expected to be hot in 2019, but it will show extensive regional variation. Analysts note that negative outcomes from trade wars could put a damper on a significant segment of the market.
The continuing popularity of e-commerce is another source of growth for the industrial sector (Fulfillment & Warehouse). The retail sector has been transformed by the new sales formats it can operate in, but it is losing floor space year by year. In spite of PwC’s optimism, it can be observed that 2018 was not an entirely upbeat year for retail, and there is reason to think 2019 will present challenges as well.
The Multifamily Appeal
In this context, the appeal of buying multifamily income property is quite clear. The overall market is healthy and competitive, and it shows signs of staying that way. It is not a simple market, however, so investors should continue to seek sound advice before buying income property of any sort.
At CWS Capital Partners, we are a fully integrated multifamily real estate investment management firm that offers everything from due diligence and multifamily real estate valuation to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We also own and manage luxury multifamily investment communities in major markets around the country and employ a team of experts who can help you hone your investment strategy.
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The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
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