What are the real estate investment trends for the rest of 2019?
Here are my thoughts to help you make better, more informed real estate investment decisions in 2019.
Uncertainty continues to shape the real estate market
Brexit is the big unknown of course, but in Europe there are also concerns about the viability of the governing coalition in Germany and the political situation in Italy. Globally, let’s keep an eye on the renegotiations around the North American Free Trade Agreement (NAFTA), and the trade war between the US and China. Both are affecting market confidence.
A safe bet for 2019 is that none of these disruptors will settle any time soon.
I think that real estate investors may well benefit from an interesting side effect from the saga that is Brexit though, and that’s the return of up to 132,000 EU workers from jobs in the UK to their home countries – an opportunity for the economies of places like Hungary and Poland, which could result in a boost in their domestic rental markets.
High demand and low supply signals potential problems ahead for real estate markets
There is another key trend that will impact real estate prices in most European markets, and potentially dampen activity – a lack of availability of suitable assets.
Demand for properties is gradually rising, pushing prices and rents up as a consequence. Which is great, for anyone who has already invested and is now enjoying higher returns. However it’s not so good for any potential new investors, who may find they’re priced out of entering an overheated market.
Low availability combined with potential changes in monetary policy (including higher interest rates) and low yield levels, could all add up to a cooling of the market this year.
In the US, we’re already seeing what happens in a market where building isn’t keeping pace with demand. It’s creating an affordability problem, with over half the real estate properties in the US’s top 50 markets seen as overvalued.
Responding to this trend requires potential investors to be innovative– looking at less traditional real estate sectors as an alternative investment. As always, finding value in a tight market is key to getting a good return.
The tech revolution comes to real estate
Real estate is a sector that is ripe for technological innovation – but businesses have traditionally invested little in this area. Recent research shows the percentage of investment in tech innovation among European real estate business struggled to rise above one hundredth of one per cent of total production.
Proptech start-ups will shake up the market. In 2019 we’ll see how tech can deliver innovative financing solutions for the industry, as well as tech (such as blockchain) that will make transactions more secure and efficient. According to the experts at Forbes, in 2018 around $5.2 billion was put into property technology start ups. We’re seeing the impact of that now, in 2019.
Digital infrastructure offers a new opportunity for real estate investors
As the digital economy continues to grow we will also see more and more investment in the infrastructure required to support it.
This means big opportunities for investors, as long as you’re prepared to look beyond traditional assets and broaden your portfolio to include everything from data centres to 5G network infrastructure.
Data centres are set to be an area of real opportunity. The experts at CBRE suggest that much of this growth will be driven by Chinese tech and telecom companies. It’s clear that where investors once put their money into rail or utilities, in 2019 we’ll see a rise in investment in the infrastructure that supports the digital revolution.
Our advice for anyone looking to get into real estate investment in 2019 is that it still represents an excellent investment option, both for short term rental returns and the longer term.
But we do add the caveat that the market may be cooling off a little this year – be prepared for potentially sudden interest rate rises and continuing geopolitical surprises that could shake confidence in the markets.
There are still plenty of great opportunities out there however, particularly in some central European markets. And technology will be the transforming influence – it is going to be fascinating to see how it finally changes the industry in 2019.
Avner Motaev Blog 