The real estate market may be one of the most stable and profitable markets in the US but it is still not impervious to the recurring changes. The market has been shifting due to various reasons.
We have seen this in the year 2021 and the same will go with the year 2022. Here we unpack 10 major factors that will impact the real estate market in the US for the running year.
1. Remote work and mobility
With technology advancement, companies are shifting from centralized offices to remote work. Some companies are allowing complete remote work while others are giving options on a hybrid model that will reduce their time on-site just a few days a month. The pandemic has enforced this culture furthermore.
With workers not needing to work on-site, at least not daily, where they choose to live will continue to change. The remote work facility has generated a new culture in real estate, where people having the facility are being interested in selling their expensive properties in the urban areas to move to suburban or rural areas for a cheaper deal and wide space.
This change can be seen from the statistics of 2020-21, where the rural area population grew by 23% to 25%. This change is seen to continue in the year 2022 as well. The rural properties will be rising in price whereas urban properties will see a few drops down. But it won’t be wise to think urban properties will completely drop because it is seen some urban populations are remobilizing towards bigger spaces and great neighborhoods. With a change in their needs, urban properties won’t completely price out.
Therefore, remote work and mobility have played a big role in market changes in terms of the real estate industry and will continue to do so in a near future. It is astute to mark the type of properties which will be in high demand. With new insights popping up, real estate enthusiasts will benefit more from going with the flow of demands.
2. Technology and innovation acceleration
Technology is changing at a rapid pace with innovation that has impacted every step of our life. The real estate industry is also no different when it comes to technology and innovation influence. How the building spaces are built according to the new needs of businesses to run more effectively, how the size of tenant spaces and future-proof building affect the lifecycle of the real estate market and how the collection of data for analytics in running the buildings more efficient, are the three major points to consider.
There are other factors too like new tech-savvy millennials are mostly utilizing the internet to search for homes. Many sellers have already started creating tour videos from 3D and virtual reality software to create creative home designs and floor plans. Many emerging property tools and listing facilities have helped direct contact between sellers and buyers without the middleman.
Others include the use of technology in building, managing, and marketing real estate properties which will lower cost and increase the chance of better return on investment. With better technologies and innovation of software and web platforms directly focusing on the real estate industry, it is advantageous to those having fresh updates and proficient hands on these.
Last but not the least, the popularity of blockchain technology is also affecting the real estate market as many buyers are being interested to transact through cryptocurrencies. So, it is a lookout for real estate agents and direct sellers to keep notice of this technology as well.
Whether we like it not, emerging technologies directed towards the real estate industry are having and will have a direct impact for many years to come.
3. ESG being the Agenda
Environmental, social, and governance is a big agenda now even in the real estate industry. Although the ESG agenda is not new it has fueled in recent times mainly due to pandemic and environmental disruptions. This we can considerably state as ESF funds and indices have outperformed standard benchmarks. People are now more interested and cautious on this issue. Therefore, there is a huge change in how investments are made.
On one hand, new legislations are developing with time and now. This is pressing how the nature of investment in real estate is changing. On the other hand, there is public awareness. Consumers are being more interested in environment-friendly and socially comfortable properties. It is being seen that more environment-friendly properties generate higher prices on sale and higher rent on the lease. Although green buildings suffer from high up-front costs, it is cheaper in long-term operating costs and high capital value as it generates high rental income and quicker occupancy rate.
Due to these factors, ESG agendas will greatly impact the real estate industry. The year 2022 will see a huge influence because the pandemic has not yet been fully mitigated. Recent political and social events like “Black lives matter”, “Greta effect” etc. are still fresh in public minds.
Logistics will disrupt the commercial real estate industry for years to come. With the modern eCommerce business boom, people are slowly relying less on physical stores. Allocation of more funds and investments are going towards industrial properties rather than retail.
Logistics diversification has also made an impact on residential properties. People now have easy access to home delivery where they don’t require to rely on traditional shopping methods. This has increased population in small and mid-sized areas where affordable housing with larger space is available with no worries for the supply of daily consumption.
5. Infrastructure: Profound Watchlist
With the US Congress passing bill of over a trillion dollars on infrastructure, the real estate industry’s stakeholders should be seriously watching the development. It is assumable that properties nearby good and new infrastructure will see uphill on price and more competition.
Environment-friendly built cities and neighborhoods with greenhouses and electromobility will be a prime investment location as tenants, businesses, and their employees move to electric modes of transit. Who would not prefer a cleaner, quieter, and less polluted location to stay? This is happening as buses, rails and other forms of mass transit are going electrical. Therefore, properties with municipalities and cities enforcing these developments will be prime locations for new millennials. Real estate owners having properties near charging hubs or that provide charging opportunities will be rewarded and profit handsomely.
The year 2022 will see the basics of the rise of these changes and whoever will get out in front of these changes will be the real winners.
6. Housing Supply and Affordability
Research has shown that the housing supply has not kept pace with the population growth. This means there is a shortage in housing availability and rental housing services. This has affected affordability in different municipalities and cities. People are compelled to pay housing rent by half of their salary and rest on other expenditures, which has a direct or indirect effect on the national economy.
There are various reasons behind the housing supply constraints. For urban areas, the main reason is the shortage of land. Another reason is the zonal restrictions in various localities where single-family housing developments are given more preferences.
But where there is constraint there is opportunity. This information is highly valuable for real estate developers and dealers. Many states have been changing zonal restriction policies. Huge demands are popping up for more housing development to lower supply constraints and increase affordability. The year 2022 will see drastic changes in the real estate industry in terms of housing supply and affordability because it has been a serious agenda from local to state to national level. So various policy changes and improvements are out due.
7. Political Polarization
Political polarization is going deeper in the United States and it is known to everyone. This hard truth is affecting every field of society, and the real estate industry is no exception. Without concentrating on divided issues and their pros and cons, some of their resultants should be discussed fairly without bipartition. Debate on for and against will go on forever if we dwell into people’s minds inflicted by many viewpoints, values, and paradoxes.
The immigration issue is a hot topic in politics. It has a direct effect on our economy as well as the real estate industry. The political friction has caused unregulated policies in this issue which has brought inflection on the labor market of the real estate industry. This has brought constraints on housing production, delayed deliveries, and prices going up. Real estate and its different forms like hotels, restaurants, personal services retailing, and medical offices have a high number of immigrant workers. Therefore, if this issue is not regulated productively, we will see more escalation of problems in the real estate industry in 2022 and more years.
8. Economic structural change
Economic structure change is a common discourse in Economic studies. It has a practical effect on the real estate industry. Smart investors of real estate take into consideration of three major factors – real estate market cycles, transformation forces, and structural changes. Economic structural change is the difference or changes occurring that has been before and those long-lived in the structure of the economy and has a profound impact.
Trends deflection for example jobs trends inflection from one industry to another may cause a shortage of human resources in the former. As the overall economy has a direct impact on the real estate market, economic structural change is an important factor to look out for. It is the space needs of businesses, households, and community services that create the demand for real estate.
In the year 2022, even though there might be an uptick in the demand in real estate as the economy is balancing positively, challenges do occur if you do not effectively calculate changing trends of property performance due to economic structural change. Understanding and forecasting the overall market cycle and estimates of rents, vacancies, operational expenses, discount rates are vital to turning investment towards opportunity.
9. Adaptive Reuse
Adaptive reuse is readjusting existing properties to new demand and changing their purpose of use. It is a common concept in the real estate industry where restructuring properties is more cost-effective than demolishing and developing a new one.
Different factors have brought adaptive reuse to be popular mainly in urban areas. Changes in residential choices, business needs, societal needs, and environmental considerations have made such a process effective on large scale. There are many benefits in this process like cost-saving, less cost than demolishing and building a new one, time-saving, low tax rate, availability of federal and local funds, energy conservation, and decreased public and social costs.
The year 2022 will see many properties going through adaptive changes as there are heavy changes economically and socially. Many people leave dense urban areas to remote and large areas, and changes in urbanites behavior will lead to adaptive reuse of properties at a frequent pace.
10. Divergence of capital markets
Public capital markets are having a great impact on the real estate industry because of their divergence towards real estate buying and selling. Previously dominated by individuals and privately held entities, the real estate industry is seen a heavy inflow of investment from financial intermediaries. The fast pace of public companies buying and selling of properties will change the structure of the real estate industry, evaluating how, where and what kind of properties to be built.
Debt capital markets and real estate investment trusts (REITs) are becoming more aggressive in the acquisition of commercial properties. They have a huge advantage of funds over individuals and private entities. Therefore, this factor is also important to take into consideration for 2022.
In the overall analysis, there are both challenges and opportunities in the real estate industry for the year 2022 and further. Effective analysis and clear understanding of changing trends will evaluate the performance of real estate investors and enthusiasts whether they do or do not turn their investment into opportunity and of value.