Types of property investments you wouldn’t want to overlook

by Denise Magtabog11 Feb 2020
  1. Coworking Spaces

Yes, there is a lot of controversy in the coworking space sector because of industry leader, WeWork’s financial issues. However, this does not mean that this market is not somewhere one can thrive. According to research done by Cushman and Wakefield in partnership with CoreNet Global, 550+ CRE executives polled said that nearly two-thirds of companies use coworking spaces in some way. Several respondents said that they expect that their involvement with coworking with double in the next five years. This embrace of flexible workspaces could be credited to its cost-effectiveness. A third of the respondents said that they have saved at least 5%.

David C. Smith, Americas Head of Occupier Research at Cushman & Wakefield, said “the results show that corporate leaders have a generally positive view of coworking and see flexible space as a growing part of their occupancy strategy.” Smith added, “The percentage of employees with access to flex space is on the rise, and companies increasingly see this as part of a broader solution.”

Forty-eight percent of respondents said it was harder to maintain a cohesive company culture when working in shared coworking locations. This, however, does not indicate that employee satisfaction is decreased. Half of the respondents suggest that they saw coworking spaces to increase employee satisfaction rather than something that would lessen engagement and efficiency.

Melanie Gladwell, Vice President, Americas Head of Flexible Working Solutions at Cushman & Wakefield said, “Increasingly, corporate executives recognize that integrating flexible space into their strategy can provide additional value while reducing occupancy costs by enabling them to adapt to major events such as merger activity – 63% of companies have stated they are using coworking as part of their office strategy.”

The interest in these spaces doesn’t just come from company executives, but from the employees themselves. Richard Smith, founder and CEO of Office Freedom, said “Aside from market investment, a recent global industry study of 15,000 businesspeople highlighted a material power shift towards employees who are demanding more flexibility.” Smith said, “In the survey, 50% of employees are working outside of their main HQ for at least 2.5 days a week; 85% said that productivity has increased as a result of greater flexibility and 80% of employees stated that, given two similar employment offers, they would turn down the one that didn’t offer flexible working.”

George Vogelei, executive vice president of Transwestern, believes that the coworking sector will continue to grow. Even though growth in the sector is slowing, data from Emergent Research indicates that from 2010 to the end of 2018, there has been a 399% increase in providers of shared workspace. Vogelei said, “New brands account for about 65% of the new coworking spaces that open each year,” said Vogelei. “Providers and landlords are using a variety of business structures to bring those spaces to the market, giving property owners more options to incorporate coworking into their buildings.” He predicts that the occupancy of this sector could increase by 22.2 million square feet by 2020. He also predicts a 99% increase in memberships; he estimates an increase of 1.1 million users.

  1. Fix and flips

A study conducted by ATTOM Date Solutions state that the dollar volume of financed home flip purchasing is at its highest since 2007. Although a report by Patch of Land shows a decline in overall fix and flip activity, the numbers show that its dollar volume has still gone up by 18%; this is from $18.5 billion in 2017 to $19.9 billion in 2018. This indicates that fix and flips is still a viable market. ATTOM reports that in the first quarter of 2019, the total dollar volume of financed home flips was at its highest in 12 years. (up 35% to $6.4 billion).

"As prices rise, the financing of flips by investors has risen to over 50% of the flipping market in several high-priced metropolitan regions around the country,” according to Patch of Land. This can be seen more evidently in larger metropolitan cities with at least one million people.

That not to say there aren’t challenges in this space. The fix and flip market is fluctuating. Patch of Land observes that though there has been an upward trend in the number of flippers in the last 10 years, the percentages are now starting to decline.

“The number of flippers has risen by 63.1% over the past 10 years as many first-time HGTV flippers entered the market and is now starting to fall,” they said. “A total of 146,020 entities (individuals and institutions) flipped homes in 2018, down 0.4% from 2017.”

The company also saw a 4% decline in flipped single family homes and condos from 2017 to 2018, and, the trend shows that profits are declining at a steady pace. From a 51% return on investment in 2016, the average ROI has declined to 50.3% in 2017 and 44.8% in 2018.

Although these fluctuations could spook first time flippers and even experienced realtors, there is still opportunity to be found in this space. One just has to be strategic in making investments in this market. Falling mortgage rates, for example, is good news for investors as it will help balance out the market’s problems and could provide fix and flips with its much-needed boost.

  1. Apartment Rentals

Americans have been renting more and it can perhaps be attributed to supposed homebuyers not being able to afford purchasing property due to enormous debt. Nevertheless, there has been an increasing demand for rental homes in the United States according to RealPage, Inc., a real estate technology and analytics firm. Aside from the demand, increases in rent can also be observed. The data shows that in the third quarter of 2019, occupancy went up to 96.3% from an already high 95.9% the year prior. This occupancy rate almost equals the all-time high of 96.4% in the late 2000.

“Apartment leasing activity accelerates during the warmer weather months, and demand was especially strong in this year’s core period of product demand,” said Greg Willet, RealPage chief economist. “New household formation continues, and rentals are capturing a sizable share of the resulting housing demand. At the same time, loss of existing renters to home purchase remains limited relative to historical levels.”

Rents have risen in the past year with Phoenix, AZ and Las Vegas seeing the largest hikes at 8.2% and 7.5%, respectively.

“While a 3% bump in rents is significant for individual renter households, it’s perhaps surprising that tightened occupancy hasn’t led to even bigger price growth,” Willet said, “As we talk with apartment owners and operators, they are expressing concerns about the possibility of slowdowns in economic growth and apartment demand during the near term. If demand cools, it can be better to sacrifice a little on rent achievement in order to go into that more competitive leasing environment with maximum occupancy.”

Many have already taken advantage of the booming renting market. Construction in the U.S. apartment sector is at the highest it has been in 30 years. Aside from the abundance of the already existing properties, there are an estimate of 538,000 market-rate apartment properties under construction. These are expected to be completed in less than two years.

“While the apartment sector’s performance has been terrific of late, the amount of product under construction does point to some near-term risk,” said Willett. “If economic growth slows, it will be tough to sustain rent growth for luxury units at today’s level, when so much top-tier product is conducting initial leasing.”