The U.S. projects growth from a current 310 million to an anticipated 430 million over the next 40 years. This trend closely parallels Europe from 1950 to 1995. What conclusions can we draw for U.S. real estate from this?
Europe grew from 527 million to 728 million from 1950 to 1995. This 38% increase almost identically matches the U.S. optimistic projection for the next 40 years. This fact offers great financial risk to following old assumptions and great returns for recognizing potential new implications.
Today when you drive around Europe, limited construction typifies the landscape. The work underway tends to tilt heavily toward improving existing structures, increasing efficiency, improving utility, modifying use. Buildings 100, 200, 500, and 1,000 years old cloak the landscape. Interestingly, if you look at the current United States inventory, required new inventory for housing and for commercial office space is potentially very limited. Assume an increase in housing density driven either from more persons under the same roof or more persons per household and projections can quickly conclude no additional inventory is required. The same conclusion is easily supported for office space as well. Considering a steadily increasing amount of telecommuting and using existing available capacity infers little need for additional space.
The exceptional office and housing cases for U.S. real estate will be some emerging communities and potentially large population shifts developing from other driving factors. These will focus around some emerging major industries in midsized markets, major government driven shifts, and education center related development.
Also, commercial warehousing and distribution will grow dramatically supporting the demands of the emerging economies and subsequent increased global trade.
Opportunistically, smart investment capital needs to adjust due diligence concerns to adapt to these emerging trends. Many investors are failing and will fail to comprehend that the days of inventory growth based real estate investing suddenly is much more risky. Moreover, many aren’t considering that in general investing return assumptions are based on this concept and therefore are flawed. Investors who recognize and adjust their debt and capital management plans accordingly stand to achieve significant gains.
Where will the best gains develop?
- Commodity distribution and development based real estate stands to see steady and large gains through the end of the century based upon emerging economy development and global population trends.
- High value locations in well developed well positioned markets will see tremendous gains as much longer horizon ownership trends develop in place of the highly marketed and over marketed “buy and flip” principals.
Investors focusing on the principles developing in the face of these new trends will reduce risk and realize outsized gains over their less flexible counterparts.