Real Estate Development
The U.S. economic news has been so positive, in fact, that many investors today worry the economy could be due for a downturn. As this current bull market nears its 10th straight year and could become the longest-running period of economic growth in U.S. history, concerns about a correction may grow.
The combination of these factors has many investors wondering where to place their capital, and whether to focus primarily on attempting to grow their wealth or simply to preserve it. One type of asset that has historically come in and out of favor, depending on the economic climate, is real estate. Real estate is cyclical and is affected by changes in the stock market. One specific category of real estate that has grown considerably in popularity among investors in recent years is Real Estate Investment Trusts (REITs). REITs are professionally managed organizations that purchase and operate commercial real estate properties to generate both ongoing income and equity appreciation for their investors.
Although they were signed into law only 60 years ago, REITs have already grown to a $1 trillion equity-market capitalization representing almost $3 trillion in real estate assets, as the nationwide REIT association NAREIT has pointed out. As popular as these investment vehicles have become, however, real estate (and thus REITs) in the coming years could face several challenges:
Despite these potential challenges facing real estate in the coming years, this asset class also provides some potential advantages for investors. Here is just a partial list of the factors pointing to the possible opportunities for individuals investing in real estate.
As the national unemployment chart in the introduction shows, joblessness has been held below 5%, which economists have historically considered a mark of “full employment,” for more than a year. If this trend continues, it is a good indicator that more businesses will require real estate, a potential boon to REITs invested in commercial properties such as office buildings, manufacturing plants, and other facilities that house a business’s workforce.
With more than 75 million living members, Millennials now represent the largest living generation according to a recent report in the Washington Post. As more Millennials become independent, join the workforce and rent their own apartments, their sheer numbers are expected to boost demand for several types of commercial real estate, from multifamily residential properties to office buildings.