At the top of the real estate ladder mortgage experts continue to see a shift in affordable housing trends. As businesses flock to set up shop in regional suburban areas, commercial real estate developers prove to quickly follow suit.
With the changing climate in America’s economy, the real estate industry’s trends encourage the development of multifamily apartments in suburban areas. As the high demand for affordable multifamily housing increases, investors now strategize how to best capitalize on trends in the commercial real estate industry to generate higher returns. Here are some trends in this sector of commercial real estate for investors to proactively take advantage.
Expensive urban cities were once the most populated and densest areas to reside, but now suburban areas have become a hot spot for many Americans. The motivation behind this new trend results from the high demand for affordable housing and short commuting distance to cities. Between 2010 and 2014, leading experts reported over a quarter of households earning less than $30,000 in yearly income. Thus, many had no choice except to move out of top metro cities including Washington D.C., New York City, and San Francisco.
Real Estate Market Predictions
With this trend, suburban submarkets run the risk of overbuilding since the migration trends continue to rise. Thus, property owners will need to raise rents to justify this huge demand. Experts advise commercial real estate investors to target more affordable housing opportunities outside the highest populated suburban markets. This will help reduce concession wars and construction costs. Furthermore, building affordable housing in less populated suburban areas will allow for new suburban areas to grow, providing investors, developers, and builders with a wealth of new commercial real estate opportunities.
A Rise In Housing Unit Demand
According to The National Multi-Housing Council, 44% of all American rental households have a head of household over the age of 45 in suburban areas. The majority of renters include families with children, domestic partners, or multigenerational families; yet only 8% of all apartments in America include three bedroom units for family living situations. This striking inequality between the supply and demand for multifamily units and affordable housing identifies a population expanding in suburban areas alluding to the need for commercial real estate for many American families.
The affordable housing trend can expect rental growth to fluctuate over the next few years while increasing from 6% to 8% during 2017. Submarkets will most likely experience flattening rents as new product lowers the supply of multifamily housing. Now is the time for investors to capitalize on developing affordable and multifamily housing communities when many experts predict a minimal turnover. Investors can reduce expenses of operation and simultaneously create higher residency in these communities. In time, this should manifest strong cash flow and risk-adjusted returns on investment, helping reduce possible issues such as inflation.
Increase Social Impact Investing
While investing in multifamily communities can help heighten large return on investment for investors, social impact investing will also become vital to growth and revenue. Affordable housing for multifamily communities can offer several social programs and support services such as daycare programs, family and marriage counseling, and community outreach. This maximizes resident retention maintaining positive social impact. In addition, installing environmentally friendly features into buildings will work to minimize operating costs and maintain affordability for residents. For example, installations such as solar panels, and drought-tolerant landscaping will help increase energy operations while enhancing sustainability.
Commercial Building Renovations
Core assets in top-tier markets will likely remain expensive and increase interest in submarkets with strong rental growth due to economic barriers to entry. As renters tend to cluster in suburban areas and housing prices spike, investors should take advantage of socially improving the lives of their residents. Doing so will guarantee the lifetime of a multifamily property, a basic need for any owner in the regional shift to the suburbs.
However, property owners should also take into account timing associated with property renovations, as improvement can be costly if not done at the correct time. Physical improvements to units require work and labor that can pay off and increase rent. When installing or repositioning an asset to social impact investing charging residents higher rent during noisy or unsanitary living situations during renovations could place the property in a less desirable position on the supply side of the market.
Relocation Provides New Opportunity
The commercial real estate industry is in an exciting, yet challenging environment. Shifts in the cost of capital are unlikely, as a result, keeping investors busy and with good job security into 2018. By closely following affordable trends, investors, developers, and builders can remain knowledgeable and prepared. Overall, the path of migration that Americans follow rests largely dependent on income, family situation, and job opportunities. The experts at Hunt Mortgage Group can assist in financing commercial real estate loans wherever you choose to relocate.