Smart Real Estate Investing in 2018

It’s a new year, and we’re moving full steam ahead. It’s a great time to check in with current real estate trends and events shaping this year’s market and then decide how you will respond to them to meet your 2018 investment objectives.

Current Real Estate Market Trends

• Money Chasing Deals: It will come as no surprise that demand for real estate still far exceeds supply. This results in peak prices, which equals lower yields, and makes it increasingly more difficult to “win” deals.
• Risk/Potential: With the market peaking, there is more downside risk and less upside potential.
• Hesitation: Current owners are hesitant to sell because opportunities to reinvest their money at acceptable returns just do not exist.
• Low Prices: Prices per square foot on existing properties seem low compared to replacement costs.
• Core Investment: Institutional investors now consider real estate a core investment, thus eliminating the need for a yield premium.
• Not Overleveraged: Properties are not overleveraged as in previous cycles as lenders have been more conservative.
• More Buyers: The Internet has dramatically increased the size of the buyer universe.
• Outside Capital: Local investors are competing with more out-of-town capital (often foreign)—with low yield requirements and less concern about the details of the deal.
• Technology: There is no doubt that technology is changing the physical needs of users.
  • Retail: Store closures, particularly department and big box stores, continue as Amazon and online shopping flourish and buyer habits change.
  • Industrial: It’s become common for older properties serving local users to be converted into other uses. Most new development is directed at large data and fulfillment centers with sophisticated technology and delivery systems.
  • Office: The popularity of cool, loft concepts as well as space-sharing concepts only continue to gain traction.
• Development: The development of office and industrial properties is accelerating.
• Mixed-Use: Mixed-use development—combining residential with retail—still dominates new developments.

So, what does all this mean for 2018?

Market Trends Results

• It’s harder to secure good opportunities.
• Due Diligence—understanding market and property trends—becomes even more important.
• It’s essential to have a long-term strategy.
• It’s important to consider different ownership structures.
• Simply “waiting” is not a good strategy since the next downturn will likely not be that severe and will offer fewer “distressed” buying opportunities.

Now, you have a clear picture of the current market and the implications of that market. What should be your investment strategy?

Strategic Next Steps

You should engage an experienced real estate advisor who will:

• Understand your needs and objectives or your problems
• Help you devise a strategy—whether that includes buy, sell, finance, lease-up or fix-up
• Execute your informed plan

At PREF, we offer these Advisory Services, delivering specific insights into investment for every client. If you are interested in learning more about how to work within the current market to best solve your investment needs, contact us.

What observations have you made about the current real estate market? Do you see additional ways in which the current market will impact investment decisions?