Demystifying the Market: Educational Series on Key Real Estate Investment Trends

The real estate market is a complex beast with many unique sides. From commercial buildings and office spaces to luxury apartments and eco-friendly homes, there are ample opportunities for investors to capitalize on modern trends. It’s important to keep in mind, however, that profits are never guaranteed in real estate, and the landscape can change in a moment when interest rates drop, employment opportunities shift, or environmental events literally change the winds. 

Understanding how to evaluate trends is just as important as reviewing the trends themselves. It’s not enough to know that more employees are working from home. You also need to understand where, why, and how they’re doing it. Will you capitalize on the need for home offices, the interest in remote work spaces, or the dearth of empty office buildings? With the right context and background, you can learn how to demystify the real estate market and make the latest trends work for you.

Key Takeaways:

• Remote work is here to stay, with the vast majority of Americans looking to work from home some or all of the time.
• Apartments and rental homes are proving more affordable than home ownership in many cities.
• Innovative technology and eco-friendly improvements can make buildings more enticing to buyers and more affordable to maintain.
• After a year of crushing interest rates, the housing market is poised for some relief in 2024, when interest rates are expected to drop not once but three times.

The Changing Shape of the American Office

Though much of the world has returned to its pre-pandemic state, it seems that the workplace may remain forever changed. Having enjoyed a taste of the good life, the overwhelming majority of U.S. workers now indicate that they want to work remotely at least part of the time. While 32% of U.S. workers prefer a hybrid schedule, 65% want to work remotely all the time. By 2025, it’s estimated that 32.6 million of Americans will work remotely. This equates to about 22% of the total workforce. 

In the real estate market, this translates to decreased interest in traditional office spaces. Many companies are downsizing their brick and mortar locations to cut back on office expenses as a growing number of their employees flee to home-based employment. Even hybrid work reduces the need for office space, as desk-sharing strategies emerge. 

Meanwhile, the demand for co-working spaces is on the rise. Co-working facilities allow remote workers to rent flexible workspaces that may include private offices, meeting rooms, or co-working areas. By 2022, WeWork’s flexible office spaces were at their pre-pandemic occupancy of 72%. Dense metropolitan environments have the highest demand for remote work facilities. This type of flexible work space takes up 15 million square feet of space in Manhattan, 8 million suqare feet in Los Angeles, 7 million square feet in Chicago, 6.5 million square feet in Washington D.C., and 5 million square feet in Dallas.

Large metropolitan areas – particularly those that are tech hubs – have the highest percentages of remote workers. Thirty-two percent of employees in Boulder, CO are home-based. This is also true of 28% of workers in Austin, 27% in San Francisco, 26.1% in Raleigh, and 25.4% in Seattle. Areas with pleasant climates also attract a high number of remote workers. Of the top 10 larger cities with the highest number of remote job applications, over half are in the sun belt. 

Increasing Apartment Construction

The severe lack of affordable housing in the for-sale sector is causing many Americans to turn to rental housing in secondary markets. Housing affordability has hit its lowest rate in three decades. America has seen the construction of 1.2 million new apartment units since the onset of the COVID-19 pandemic. This includes 700,000 units between 2020 and 2022 and another 460,000 expected to reach completion in 2023. 

The majority of new apartments are luxury units. Over 40% of new apartment construction is concentrated in about 10 metropolitans areas with high job growth including New York, Atlanta, Denver, Nashville, and Austin. Though rental rates remain high, renting is still more affordable than owning a similarly-sized home in 88% of markets across the United States.

The gap between the afforability of a rental versus a single-home purchase is greatest in populous counties with at least a million residents. The largest gap is seen in Honolulu, HI, where renting a home consumes 67% of average local wages but owning a single-family home takes 134% of the average income. In Brooklyn’s Kings County, the average rental price would take 72% of a family’s average income while owning would require 136%. In Oakland, California’s Alameda county, average rent accounts for just 51% of the average income while owning would take 108%.

Real estate investors with an eye on these trends may want to put their money behind affordable rental units. Managing a rental property can provide steady income over a longer period of time, and many rental properties can easily be sold later when the real estate market has become more profitable.

Demand for High-Tech Eco-Friendly Homes

Today’s savvy consumers are on the lookout for real estate that’s equipped with the latest and greatest in technology. Technology and sustainability go hand-in-hand, delivering a living experience that’s both convenient and eco-friendly. Smart homes can independently tailor their operation to minimize their environmental impact by turning off lights and lowering temperatures when spaces are unoccupied. 

Construction materials that off-gas VOCs are plummeting in popularity while demand for sustainable materials is on the rise. Real estate investors who are constructing or renovating properties should keep green building practices in mind. Incorporating these strategies in your project now can give you a more desirable rental or sale listing in the future. If you plan to hold onto the property as a rental, you can also enjoy the long-term savings associated with a more energy-efficient and water-efficient construction.

Smart building automation is a highly desirable feature as well. Automated utilities can track preventive maintenance needs and identify abnormalities in operation that may indicate the need for a tune-up and repair. This instantly eases strain on building owners and managers who are otherwise tasked with tracking this type of information.

Increase in Home Sales

Residential real estate purchases are expected to increase gradually in 2024, giving real estate investors fresh opportunities which have been rare in recent years. In 2023, 51% of Americans felt it was a bad time to sell a home and 53% thought it was a bad time to buy. Mortgage interest rates hit a high of 7.79% in October ’23, making it wildly appealing for homeowners who had secured 3% rates just a few years before to stay put.

Though Federal Reserve rates increased steadily over much of 2023, they have finally plateauted and now seem poised to drop. Jerome Powell, chair of the Federal Reserve, says the Fed expects interest rates to drop three times over the course of 2024. While this is good news for real estate investors, it’s important to keep in mind that everyone interested in the market likely has the same idea. A buying frenzy may ensue when rates do finally drop, opening up highly coveted opportunities.

Decoding the Trends

Are you ready to optimize your real estate investment strategy by capitalizing on the latest trends? With an Infinity Investors membership, you can get access to Infinity Advisor strategy sessions, on-demang training, and a weekly online real estate investing room complete with a live deal analysis. Get the education you need to streamline your strategies and optimize earnings on real estate investments.