The State of Real Estate Investing: Emerging Trends and Opportunities to Consider

“With all the volatility of 2020, I’m sure financial advisors have been working nonstop to help clients update their investment portfolios,” says Chris Stuart, CEO of Berkshire Hathaway HomeServices. “And our network agents have been similarly busy this year—because the real estate investment market is rapidly changing each day, which means opportunity … but only if you make well-informed decisions.”

“It’s true there’s an awful lot of uncertainty ahead,” adds Mike Fields, Managing Director of Berkshire Hathaway HomeServices’ Commercial Services division. “But that also means potential. We never look or hope for bad times, but at our core, we’re problem-solvers. The more and the bigger the problems there are, the more need there is for highly experienced, professional consultative real estate brokerage professionals.”

To that end, we reached out to real estate executives across North America to provide their expert insight on the state of property investing—in both residential and commercial markets. Our conversations highlighted trends and opportunities potential investors should keep in mind as 2020 comes to an end.

Q: What were some transformative shifts happening in commercial real estate pre-COVID-19 that have been exacerbated by the pandemic?

Mike Fields: There were obvious changes happening in the commercial retail space due to the popularity of online shopping. Commercial real estate, in terms of industrial and warehouses, was strong because of online shopping and last-mile inventory control. But we’re expecting as much as 50% of retail space is going to have to be repurposed—maybe a 20% to 25% reduction in the per capita square footage of retail space—because of this.

Q: Is there one type of space or property that is really prime for repurposing?

Mike Fields: Retail properties, I think, are the biggest one. As far as investors are concerned, there’s still a lot of uncertainty there. The micro level has become much more important—the tenants and their base products and service. Somebody with local market knowledge and local expertise is more important than ever because you need to take a deep dive into the tenants.

Q: For an investor who wants a stake in ownership on a single commercial property, what should they consider in terms of risk and opportunity?

Mike Fields: With commercial real estate, investment-wise, you’re buying the quality, quantity and durability of the income stream as an alternative to other things you could do with your money. If the property is leased, then the most important thing is asking: Who are the tenants? What is the quality and the durability of the income stream? Can the tenants pay rent throughout the pandemic? How long a lease is there? If it’s a one-year lease or a six-month lease, that’s problematic. If it’s a five-year lease, that’s better.

Q: When it comes to residential investing, Florida has traditionally been a hot market. Are there shifts in the types of investment buyers right now?

Jimmy Burgess, Chief Growth Officer, Berkshire Hathaway HomeServices Beach Properties of Florida: Our investment property buyer in Northwestern Florida is a little bit different than the typical investor. They’re not looking at cap rates. They’re interested in our market for the short-term rental potential. The biggest shift we’ve seen is investors are now looking at the financial ROI and weighing their own lifestyle ROI much more heavily. Because of the pandemic, I think people are anticipating more times when they’ll want to be using the property themselves, as opposed to renting it out to others.

John David Sullivan, Partner and CEO, Berkshire Hathaway HomeServices Beach Properties of Florida: I think people are considering real estate in our area a viable investment more than ever before. Being an election year, people are worried about their portfolios, and they’re diversifying their assets accordingly.  Because more and more tourists are not traveling to far-off destinations, the need for short-term rentals in a place like Florida will likely increase, which is why sales activity here has remained strong. Our historical appreciation has been 8% to 10% a year along the beach area. That’s substantial. It’s a really safe place for someone to invest their dollars.

Q: What are savvy property developers doing to adapt to the current landscape?

Jason Garland, Partner and Vice President, Berkshire Hathaway HomeServices Toronto Realty: I just saw, for the first time, a four-bedroom condo being built in new construction. That has a lot to do with the pandemic, but also 10 years of city developers building one-bedrooms and micro condos. The market is saturated with that inventory, so you’re going to have a harder time selling those in the future. I think the two-bedrooms will hold their value for longer periods of time. We just started seeing the first in-law suites and nanny suites built. It’s the first time we’ve seen them in Ontario, or Canada, for that matter. Finally, developers are also paying more attention to not just the center city, but also more new construction on the perimeter of the city as well. So I think there’s an interesting and emerging opportunity there for investment.

Q: What advice do you have for an individual buyer who is thinking about purchasing a second home as an investment property in 2020?

Dena Fleming, Senior Partner and Associate Broker, Berkshire Hathaway HomeServices Utah Properties: Purchase for lifestyle and the long term. We all know there have been historical real estate cycles, and trying to “time” an investment is generally an ill-advised strategy. Purchase because the area offers the activities and amenities that are important to you and your family. If buyers are either partially or largely interested in investment/rental income, they should interview local property managers and consult their financial advisors to evaluate the potential impact on their larger personal financial goals.

Stephen Roney, Owner and CEO, Berkshire Hathaway HomeServices Utah Properties: Resort properties are not always easy to sell quickly. Rental numbers fluctuate seasonally, can be dependent on weather predictions, and of course, subject to national and global economic impact. Also, it is important for prospective buyers to understand that development activity will continue to offer new product, amenities and incentives, which will compete with resale activity.

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