The Best Real Estate Investments In 2014 (HINT: History Repeats Itself)

By James Young on March 11, 2014
The Best Real Estate Investments In 2014 (HINT: History Repeats Itself)

With the real estate market meltdown still far too fresh in many’ memories, there is understandably a measure of caution as investors consider the best real estate investments in 2014. But flashbacks of 2006 are not likely to overshadow the excitement over the heightened pace of the market’s recovery in the coming year.

Research conducted jointly by PricewaterhouseCoopers and Urban Land Institute bears this out. It showed clear winners among results of interviews and survey responses from over 1,000 participants regarding the best opportunities for real estate investments in the coming year.

The researchers interviewed more than 377 respondents and compiled results from over 694 survey participants from among a broad range of industry experts, including property investors, fund managers, property companies, fund managers, brokers, advisers, lenders and other real estate industry consultants. The research results showed strong investment prospects, particularly in commercial properties.

Healing Continues

Activity in the real estate sector will continue to rise in 2014, with the market showing increasingly stronger signs of recovery throughout the months ahead. The pace should surpass that of the previous few years, when primarily fundamental facets of the industry needed to recover. Overall, recovery has been slower than during times following other, less-impactful, recessions.

Rather than economic recovery boasting 250,000 new jobs a month, the recovery has proceeded at a pace of about 100,000 jobs a month This slower pace often made it difficult to identify signs of improvement in the real estate market until they were in full swing.

Some of the trends likely to occur in 2014 will be familiar to investors from prior years. However, because the market has progressed further in its economic recovery, the overall impact on today’s real estate market will be much more evident than in months past.

Key Drivers

A number of conditions and circumstances serve as key drivers for the real estate market in 2014. These include:

  • Improved opportunity for profitability
  • Increasing interest rates
  • Back to fundamentals of rising occupancies and rents driving profits
  • Increased availability of equity capital
  • Development beyond multifamily residential units
  • Demographics that are more urban, less suburban driving property development
  • Changing space needs for commercial and multifamily properties due to changing preferences for space
  • Continued housing market recovery

Industrial Growth

Overall, investment and development opportunities are expected to continue growth in 2014, despite increasing interest rates, with the commercial real estate market improving across the broad spectrum of property types. Trends like an increase in urban rental housing and more collaborative office configurations will leave their mark.

Long-term investors will not want to miss out on opportunities in the industrial sector, which continues to do well even if it is not the most sexy of real estate investments.

Commercial Growth

Hotels follow on the heels of industrial and distribution property prospects, with hotel development and investment expected to be strong, though not as strong as the industrial or distribution properties. Not many hotels have been built in recession years, but demand is starting to come back due to an increase in tourism and  business travel.

Although identified as leading prospects the last couple of years, look for apartment prospects to show significant decline for developers in 2014, due primarily to a peak in supply. Investment opportunities in apartments are also likely to slip, trailing opportunities in industrial, distribution and hotel investments.

Continued job growth will mean activity in the retail and office sectors will keep development prospects alive for both these commercial sectors with noticeable growth for 2014. Keep in mind, however, that while retail space is not going to go away, continued growth in technologies impacting how retail sales are conducted will continue to impact the sector over the longer term, shaking up the mix of investment opportunities in this sector.

Real Estate’s Sweet Spot

 

While gross domestic product (GDP) growth has not been earth-shaking, it has been steady and moderate, leaving experts in the industry to predict opportunities in commercial real estate across all property types. There has been sufficient growth in GDP to spark demand for space and improvement in rent, leaving a sweet spot for real estate investors as there is almost no new supply to meet this demand.

That means investors have their choice of building new commercial properties or investing in existing commercial properties of all types to meet demand. With new construction still scarce in the post-recession era, leaving very little supply, landlords may find the opportunity to nudge rent a bit higher, feeding the prospects for profits.

Best Prospects for Residential

Investors looking for opportunities in residential property types can expect a more promising 2014 compared with the last few years, across all property types. Look for strong jumps in investment outlooks for single-family housing for moderate- to high-income developments in particular. Changes in demographics will also sweeten the outlook for city housing as younger people seek urban abodes, followed by growth in senior housing and traditional single-family dwellings.

Investment prospects for condos and second/vacation homes will also continue to improve at an increased rate, though these sectors will trail the afore-mentioned residential property types.

Opportunities for Developers

For years, the multifamily and bulid-to-suit sectors were the focus for developers. But the stage is set for that to shift in 2014 when industrial development, like industrial investment, is expected to garner top spot on the list.

Improved market vacancy rates and rent growth forecasts mean opportunities for development will exist in additional select markets and property types, particularly the office sector. Companies will look for new configurations of space as tightened belts led to new awakenings of how to make do with less space per employee.

A Year of Growth and Opportunity

To some, the real estate investment outlook for 2014 may appear to be more of the same. But in reality, the growth in the market will noticeably outpace that seen in other years since the peak of the housing market meltdown.

As the housing sector continues to enjoy recovery, sage advice for investors considering any type of real estate investment might be to find the right market and the right partner. Then, execute without delay and don’t let an opportunity pass you by, but focus your attention on one investment prospect at a time.

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About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!