Today is 02/20/2020, so I think it’s a great time to make some predictions for the rest of the 20s. I know I’m cheating a little bit…
Today is 02/20/2020, so I think it’s a great time to make some predictions for the rest of the 20s. I know I’m cheating a little bit because the decade has already started. Actually, we’re more than 1% through the 2020s already, which is a bit jarring.
For all the problems of the 2010s, it was a great decade to invest in real estate. We don’t have permission to publish the numbers, but check out the CPPI (Commercial Property Price Index) put out by Real Capital Analytics. You would have made a lot of money putting capital to work at the beginning of the decade and just hitting the index return.
But the gains weren’t evenly distributed. They never are.
Industrial had an amazing run this past decade, while Retail was turbulent. Multifamily seems to be a long-term winner, while Office has seen strong growth but largely in conjunction with a venture-backed, loss-leading Coworking trend that some would deem problematic.
So what forces will shape the real estate market in the 2020s? If you trust our crystal ball from the dollar store, these will be the 20 most impactful trends.
Startups and small businesses, and increasingly businesses of every kind, are demanding more flexibility from a real estate industry that has traditionally run on long term commitments. This has led to a meteoric rise in Coworking/flex office space, and increasingly all major commercial real estate asset classes. As tech startups continue to proliferate, as the on-demand mindset continues to take hold of our lives, expect this to continue.
This goes hand-in-hand with the rise in flex space, but it’s actually a separate (if related) disruption of the traditional model. Landlords could have seen the increasing demand for flexibility and met the shift with their own service models in the buildings they own. They didn’t, startups did, and now we’re seeing those service-oriented brands start to control the experience. Think WeWork, Airbnb, and a host of other innovative mixtures of traditional asset classes with the hospitality mindset.
Some landlords are trying to take back the branding of the space so they can stay in touch with those that occupy their buildings, but look for this trend of branded space to continue to grow overall.
Speaking of on-demand, have you seen what’s happened to the shopping experience. Point, click. The need for goods and services to be delivered to consumers, fast, will continue to reconfigure how last-mile delivery is executed. This means more warehouse and local distribution sites for everything from electronics to perishables to prepared food.
Yahoo finance can tell you the current stock price and quarterly earnings of any public company. But it can’t tell you anything about the earnings or capitalization of major buildings in your city. Will this be the decade that changes?
Maybe not. But data transparency is absolutely charging forward. Between the walled-garden data giants and a host of startups, there are a lot of people working toward a more transparent real estate industry. The fruits of that labor will lead to more accessible comps (not just in major cities) and property information. This will arm real estate investors with more and fresher information relevant to their investment and asset management decisions.
It’s not only about the property information, though. Traffic (both vehicles and foot traffic), social media, sentiment, spending… dozens of data sets will be combined in with traditional “real estate” data in order to paint a richer picture of the market.
AI may not be well understood by your average person, or by your average real estate pro. But when a computer program becomes better than a human at executing investment analyses in a certain sector, it will never look the same. Here are some thoughts on the topic from way back in 2017:
Let’s step back from the scary AI stuff for now. For the foreseeable future, it’s only going to be a tool in the hands of real estate investors to give them an advantage, not to break the system. People will still own real estate.
But the ownership structures are going to become more fluid. One major reason for that will be tokenization. There will be virtual shares investors can buy and sell freely, which will be powered by a type of crypto-currency, that allows them to seamlessly enter or exit a real estate investment. Not for every property, but for many. This is going to usher in a new era of liquidity for real estate investments, and bring us closer to the goal of real estate assets traded in like fashion to stocks today.
I really hope I’m right about this one. Does anyone love the current title search, title insurance, and escrow process? Me neither.
Smart contracts are another blockchain idea that allows for a more seamless execution of a deal that would traditionally need verification and escrow. The goal will be to make closings happen faster and cheaper.
The front-runner for nomination in the Democratic primaries is on record supporting the Green New Deal. Whether he wins or not, this will be the decade of environmentally conscious legislation, and it’s going to have major ramifications for commercial buildings that contribute carbon to the atmosphere and otherwise affect our broader climate.
California, Oregon, and New York famously passed sweeping state-wide rent control regulation over the last two years. New York City is seriously considering commercial rent control. The value proposition for investing in commercial real estate is fundamentally altered when the state steps in and decides pricing. Governments of all levels across the country will consider tenant protection legislation over the next decade that will have major ramifications for real estate investors.
This is a real incentive for investors with capital gains to put that capital in a different place than it would go without the tax incentives. If you’re not familiar with the whole Qualified Opportunity Zones program, others have written good overviews. Here’s a list of resources:
5G isn’t progressing, but we may be dealing with 6G and other technologies before the decade is out. Whichever combination of wires and radio signals we’re dealing with, bandwidth is going way up, and we’re on the cusp of an exponential rise in machines connected to the internet. Last decade saw the rise of mobile phones — people connect to the internet wherever they are. This decade will see the rise of connectivity beyond people to the places and things we interact with.
So what do we do with all this extra bandwidth? One thing we can do with it is connect things. Sensors will be a big piece of this. As much as it’s nice for your coffee maker to be IOT-connected so you can activate it remotely, it’s much more powerful to monitor heavy machinery and building infrastructure. Water, HVAC, waste… all of it can and will be brought online, optimizing real estate. We can also optimize, and even design, around the real movement of people due to sensors. This is going to be a big deal for developers.
What else can we do with a bunch of extra internet bandwidth that permeates our country? Not just connect things, but augment places. This is the way to make places richer and “larger” without adding any more physical space or material to a place. Part of this is driven by broadband, but a lot of it is the hardware necessary to deliver more information to our brains in a user-friendly way — through augmented reality glasses and headphones, and through better content designed for this type of experience. If the real estate experience is going Branded (and it is, didn’t you read above?), look for the space brands to take an active role in augmented reality content, if not developing the tech themselves.
While Augmented Reality is about super-imposing content onto the real world, virtual reality is about entirely separate experiences from the physical world. The lion’s share of VR will be about connecting to digital places and experiences, but it will also allow for remote experience of other real places. Yes, that will mean more property tours inside a VR headset — but it will also mean people attending live events from the comfort of their own home.
I have a 4 year old daughter, so she won’t reach driving age during this decade, but to be honest, I’m not sure that she’ll ever need to drive a car. By the time she gets to that age, the cars will be able to drive themselves. How will this affect city life? Hopefully less traffic, less space dedicated to parking, less pollution, less auto fatalities, and less time wasted looking at roads.
I didn’t add this as a separate trend, but we will probably also see the earliest commercialization of flying cars this decade as well. 😲
Will those driverless or flying cars run on gasoline by 2030? Probably not. From vehicles to major power plants, renewable energy is getting cheaper. Solar, wind, nuclear, and more will take a lot of market share from fossil fuels, and probably even more and faster due to climate change regulation. Buildings will play a part in this by housing both power generation and batteries.
It’s all about the cities, again. While people can escape more and more because of the internet, VR, driverless cars, etc, it doesn’t mean they necessarily want to. Live, work, play will still be the name of the game.
Most of the working Boomer generation will retire in the 20s, and with the amount of money they spend on health care, they’ll be retired for a long time. We simply don’t have the amount of senior housing stock needed to keep up with demand. Developers will continue to push out supply, but you can also expect to see the rise of new models of supporting retired seniors in their own homes, in senior communities, assisted living centers, or potentially entirely new settings.
10 years left until the year Elon Musk said we’d be living on Mars. What do you think the cap rates will be like for a Martian survival pod?