As the world adjusts to the new normal and accelerating migration – the highest in five decades – institutional investors are considering how to align their strategies with the changing needs and demands of society. We explain the risks and opportunities for residential real estate investors
Like many capitals at the height of the 2020 pandemic, New York saw an exodus to the outskirts, suburbs and countryside to escape cramped apartments and stroll through green spaces. Rent prices have plummeted.
But things have since taken a 180 degree turn. New York City and surrounding areas are experiencing a renewed rental frenzy.
The choice to work from home or remotely has, for some, resulted in a drop in take-home pay of up to 25% if their employer adopts a location-based wage policy.
This has been a trend in Silicon Valley among global technology companies such as Google, Twitter and Facebook. Since 2020, swathes of tech workers have moved from San Francisco to Austin, Texas, a booming tech hub with lower rental prices.
Investors considering either U.S. coast will be advised whether these tenants meet the same demographic and amenity needs as previous tenants pre-pandemic. Income and earnings statistics will be important parameters for measuring these changes in society. They could influence institutions’ investment strategies in residential real estate.
Is the real estate ready to be reallocated?
London’s rental housing market reveals something quite different. Despite being asked to rejoin office life, many people left the capital for suburban towns and rural villages to enjoy larger properties, lower prices and ample space. outside. Those with office jobs are looking to negotiate remote work options.
Employers face a dilemma. Employees want better office amenities and working conditions, which equates to demanding more space per employee. The days of all staff in an office every working day are over. So can employers downsize or relocate from city centers, or will they provide the best facilities in the best place to help in the fight for talent.
According to Deloitte Insights, net changes are “hard to predict” when it comes to housing and mobility trends. A trend that seems more certain, however, is the accelerated gentrification of urban areas. The reconversion of industrial buildings, the creation of cycle paths and the availability of bicycle and electric scooter rental services are pushing for the renewal of downtown districts.
Will digital nomads be part of a larger investment strategy?
Digital nomads – remote workers, freelancers and start-up teams who choose to live and work in different countries for a different work-life balance – are creating opportunities for real estate rentals. While still in their infancy, digital nomad “villages” are emerging in vacation hotspots such as Portugal, Spain, the Caribbean and Sri Lanka.
This phenomenon could be a good indicator of how hotels and vacation properties could be repurposed as longer-term rental opportunities with onsite amenities such as fast internet access, commission and after work events or concierge services.
How to make off-grid country properties energy efficient
With rising energy costs and accelerating inflation, the case for local renewable energy is stronger than ever. But this requires locations that can harness natural resources such as wind, sun, waves or tides. If more city dwellers move to rural areas, existing and new housing stock will need to be reallocated to meet higher electricity demand.
Off-grid country properties are often dependent on fossil fuels, while many older buildings are not energy efficient. To achieve zero carbon goals, these communities will need massive government-backed initiatives and institutional or corporate investment.
There is even talk among green policymakers in the UK that green mortgage rates should be based on a home’s energy rating and carbon footprint.
Rather than working against nature to avoid climate change-related damage, residential properties could work with it, incorporating systems that channel floodwaters into ponds or cropland.
Developers, homebuilders and investors should be proactive in the face of climate change by designing innovative solutions.
Opportunities and risks for real estate investors in 2022
Investors will be advised to monitor the changing needs of the company. Levels of international migration – whether precipitated by employment, retirement, climate change or conflict – have reached record highs over the past five decades.
In 2020, the estimated total number of 281 million people living in a country other than their place of birth was 128 million more than in 1990, and more than three times the number estimated in 1970, according to the United Nations.
Investors and developers in the residential real estate market have traditionally focused on catering to affluent urban professionals with a one- to two-bedroom apartment rental model. However, the market for three and four bedroom properties will also be a safe bet for the future, as families will need space to grow, especially if their offspring cannot afford to join the property ladder. . Could some investors over-allocate to either option or hedge their bases and create properties that offer both?
For older generations, things are also likely to change. There is a lot of money tied up in residential housing, especially for people in their 70s and 80s. With the cost of living already rising, there is an argument that we will start to see people looking to recycle capital. They will want to take advantage of the house price inflation they have accumulated throughout their lives in an effort to move away from being asset-rich and cash-poor.
Funds invested in student or affordable housing will need to use the actual location-based living wage when considering rental income. This, along with other tangible metrics, could be used to demonstrate an investor’s social performance and the benefits to society as an owner.
The Intertrust Group real estate team will be present at Mipim this month to discuss these trends.
How can Intertrust Group help you navigate the residential real estate market in 2022?
Our ESG Fast Track benchmarking tool can help institutional investors become desirable owners by measuring the societal benefits of their assets.
We ensure that our institutional clients adhere to the latest government policies.
We can help establish and administer real estate structures for all types of institutional investors.
We can support you with technical and practical expertise in real estate financing and acquisition structures.
With our global presence, we can support your cross-jurisdictional needs.
Intertrust Group is a publicly traded company with 70 years of experience providing world-class trust and corporate services to clients around the world.