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The great migration: opportunities and risks for real estate investors

11 March 2022

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As the world adjusts to the new normal and accelerating migration – the highest in five decades – institutional investors are reviewing how to align strategies with the changing needs and demands of society. Philip Hendy, Head of Real Estate, Intertrust Jersey explains the risks and opportunities for residential real estate investors

Like many capital cities at the height of the 2020 pandemic, New York saw an exodus to the city outskirts, suburbs and countryside to escape cramped apartments and roam in green space. Rental prices dropped.

But things have taken a 180-degree turn since then. New York City and its surrounding areas are experiencing a renewed rental frenzy.

The choice to work from home or remotely has meant, for some, a cut in take-home pay as high as 25% if their employer adopts a location-based salary policy.

This has been a trend in Silicon Valley among global tech firms including Google, Twitter and Facebook. Since 2020, swathes of tech sector workers have moved from San Francisco to Austin, Texas, a burgeoning tech hub with lower rental prices.

Investors looking at either US coast will be wise to learn whether these tenants fit the same demographic and amenity needs as previous, pre-pandemic tenants. Income and earning statistics will be important metrics to measure such changes in society. They could influence institutional investment strategies in residential real estate.  

 Is real estate ripe for repurposing?

London’s rental housing market reveals something altogether different. Despite being asked to join office life once more, many people have moved out of the capital to commuter towns and rural villages to take advantage of larger properties, lower prices and ample outdoor space. Those with office-based jobs are seeking to negotiate remote working options.

Employers are faced with a dilemma. Employees want better amenities and working conditions in offices which equates to requiring more space per employee. The days of all staff in an office every working day are gone. So, can employers downsize or relocate from city centres, or will they provide the best facilities in the best location to help in the fight for talent.

According to Deloitte Insights, net changes are “difficult to predict” when it comes to housing trends and mobility. One trend that is looking more certain, however, is the accelerated gentrification of urban areas. The repurposing of industrial buildings, the creation of cycle lanes and the availability of bicycle and e-scooter rental services are pushing the renewal of inner-city neighbourhoods.

Will digital nomads be part of a larger investment strategy?

Digital nomads – remote workers, freelancers and start-up teams that choose to live and work in different countries for a different work-life balance – are creating rental property opportunities. While still early days, digital nomad “villages” are emerging across holiday hotspots such as Portugal, Spain, the Caribbean and Sri Lanka.

This phenomenon could be a good indicator of how holiday hotels and properties could be repurposed as longer-term rental opportunities with on-site amenities such as fast internet access, breakout rooms and afterwork events or concierge services.

How to make off-grid countryside properties energy efficient

With rising energy costs and quickening inflation, the argument for home-grown renewable power is stronger than ever. But this requires locations that can harness natural resources such as wind, sun, waves or tides. If more urban dwellers move to rural locations, existing and new building stock will need to be repurposed to serve higher power demand.

Off-grid countryside properties often rely on fossil fuels, while many old buildings are not energy efficient. To meet zero-carbon objectives, these communities will require mass government-backed initiatives and institutional or corporate investment.

There’s even talk among green policymakers in the UK that green mortgage rates should be based on a home’s energy rating and carbon footprint.

Rather than working against nature to avoid climate change-related damage, residential properties could be working with it, by integrating systems that channel floodwater into basins or cropland.

Developers, homebuilders and investors should be demonstrating a proactive attitude towards climate change by devising innovative solutions.

Opportunities and risks for real estate investors in 2022

Investors will be wise to monitor the changing needs of society. International migration levels – whether precipitated by employment, retirement, climate change or conflict – have increased to record levels over the past five decades.

In 2020 the total estimated 281 million people living in a country other than their birthplace was 128 million more than in 1990, and over three times the estimated number in 1970, according to the United Nations.

Investors and developers in the residential property market have traditionally  focused on catering to affluent urban professionals with a one-to-two-bedroom apartment rental model. However, the market for the three- and four-bedroom properties is also going to be a safe bet for the future as families will need space to grow – especially if their offspring cannot afford to join the property ladder. Could some investors over-allocate to either option or cover their bases and create properties that provide both?

For older generations, things are also likely to shift. There is a lot of money tied up in residential accommodation, especially for those in their 70s and 80s. With the cost of living already increasing, there is an argument that we will start to see people looking to recycle capital. They will want to experience the benefit of house price inflation that they’ve accumulated through their lifetimes with a view to move away from being asset rich and cash poor.

Funds invested in student or affordable housing will have to use the real living wage based on location when considering rental income. This, along with other tangible metrics, could be used to demonstrate an investor’s social performance and benefit to society as a landlord.

Intertrust Group’s real estate team will be at Mipim this month to discuss these trends.

How can Intertrust Group help you navigate the residential property market in 2022?

  • Our ESG Fast Track benchmarking tool can help institutional investors become sought-after landlords by measuring their assets’ societal benefits.
  • We ensure our institutional clients are adhering to the latest government-led policies.
  • We can assist with establishing and administering real estate structures for all types of institutional investors.
  • We can support you with technical and practical expertise of real estate financing and acquisition structures.
  • Thanks to our global presence, we can take care of your cross-jurisdictional needs.
  • Intertrust Group is a publicly listed company with 70 years’ experience in providing world-class trust and corporate services to clients around the world.