The ripple effects of the COVID-19 pandemic continue to touch every facet of American life — including the real estate market.
Over the last two years, we have seen unprecedented housing shortages, skyrocketing home values, and a mass exodus from the nation’s once most sought-after cosmopolitan cities. The pandemic has changed how we live, work, and do business — in some cases, forever.
What does all of this mean for real estate investors? How might the changing housing market and the possibility of recession affect the when, what, where, and how of real estate investing?
Read on for investing trends for residential and commercial real estate in 2022.
First, we will look at predictions for residential real estate based on trends regarding where people want to live, the types of dwellings they wish to inhabit, where they spend their money, and how they choose to do business.
Then we’ll dive into commercial real estate investing trends. Although they remain a solid investment, as work-from-home, e-commerce, and curbside pickup become permanent institutions of American life, the landscape of commercial real estate is changing rapidly.
If you want to start investing in 2022, keep reading for this year’s top real estate investing trends.
Real Estate Investing in 2022
As interest rates trend upward, the real estate market will continue to creep toward pre-pandemic levels.
While the market remains competitive, rising interest rates will continue to force buyers out of the market. Listing inventory will slowly creep toward normal levels. It’s unlikely housing prices will fall, but price increases are expected to slow down.
In 2022, inflation and supply chain issues will continue to affect real estate investors.
The inflation surge of 2021 leveled off at the end of the year. Still, real estate investors can expect to continue to deal with supply chain disruption and labor shortages. The only way out is wage increases, so inflation and market volatility are here to stay in 2022.
Residential Real Estate Investing Trends in 2022
Rising demand, waning supply, and surging home prices will continue to affect the residential real estate market in 2022. In the post-COVID-19 world, we are seeing lingering changes in how people buy and rent real estate — and where they choose to live.
Here are the residential real estate trends investors need to be aware of to discover how to invest in 2022.
Smaller Cities & Suburbs
Young professionals and families are moving out of big cities and into smaller cities and suburbs.
Industry experts say the shift out of large metropolitan cities to mid-size cities will likely continue for the next 3-5 years. As rent and home prices climb, many will continue to exit expensive cities out of necessity.
The shift is also spurred by the normalization of remote and hybrid work. This gives city-dwellers the chance to live in areas with more affordable housing.
Millennials are entering the home buying stage of life and may find larger, family homes in the suburbs enticing as opposed to expensive apartment living in the city.
The Sun Belt
Americans are moving out of large metropolitan areas, but where are they going? The answer is The Sun Belt states.
The Sun Belt refers to the 18 states along the nation’s southern border. America’s most persistent population growth over the last decade has been in that region.
CrowdStreet’s 2022 Best Places to Invest Report listed 17 Sun Belt locations out of 20 total. Cities to make the list include:
- Austin, Texas
- Dallas, Texas
- Tampa, Florida
- Nashville, Tennessee
- Phoenix, Arizona
These cities have booming real estate potential. On the other hand, New York, Philadelphia, and San Francisco markets are declining.
The promise of affordable housing, more space, warm weather, and lower taxes will bolster real estate markets in The Sun Belt for years to come. If you’re thinking about investing in single-family homes or multi-family rentals, a Sun Belt city or suburb is a great place to start.
Single Family Homes
The pandemic changed the way we think about home. In 2022, our mindsets still center on the home as the place where we work, entertain, shop, and even educate our children.
Single-family homes in suburban communities are arguably the most desirable real estate in 2022. The high demand for single-family residences is driven by:
- Low-interest rates
- Migration to suburbs
- More people working from home
- More leisure time spent at home
- Millennials entering home-buying years
- Strong pre-pandemic trends exacerbated by the housing shortage
Even as increasing interest rates help cool the market, the National Association of Realtors Report the housing inventory is low with a 2.6 month’s supply. The high demand for single-family residential real estate will continue.
Increasing Demand for Multifamily Dwellings
The demand for multifamily rentals in the suburbs will continue to outpace demand in metro areas in 2022. Rising rents are squeezing budgets everywhere. We predict the demand for affordable rentals will not slow down any time soon.
Here’s why. Rent is expected to grow at a double-digit pace in 2022, so investors can expect to see robust demand for multifamily units and apartment complexes in smaller cities rise substantially. The need, combined with increased wages and more disposable income for renters, will drive up rent growth in the suburbs, making multifamily a robust investment in 2022.
Changing Rental Demands
Rental demand for residential and commercial real estate is expected to continue to decline in big cities.
As rents climb, more young professionals will decide to buy instead of rent. Those who can’t afford to buy a house will either rent in the suburbs or move back in with their parents rather than face eviction. According to Pew Research Center data, the number of young adults aged 18-29 living with their parents is now hovering around 50 percent.
As rental units in big cities sit vacant, real estate investors may jump on them in anticipation of renters returning in the future.
Investors who don’t want to wait may look to communities with a low cost of living. It’s a great time to invest in rental properties in affordable communities because that’s where the demand is now. Whether you choose to invest in rentals for single-family or multifamily, you can expect strong growth in the coming years.
People moving out of cities are looking for suburbs and smaller cities with a big city vibe in the form of “middle neighborhoods.” These communities predominantly have high walkability, good shopping and restaurants, and public transportation options. Real estate investors may consider building near city centers or upgrading vacant downtown buildings into multifamily units.
Short Term Rentals
Airbnb had 356.9 million nights booked in 2021. Short-term and vacation rentals aren’t going anywhere and will continue to be a powerful investment opportunity in 2022.
Short-term rentals can range from a few days to a few months and are attractive to investors because rent is paid upfront. There is also no eviction process to contend with should a tenant refuse to leave at the end of their stay.
New Construction > Value Added
Insurance experts now say the rebuild cost could be 30%-40% higher than new construction. Rising home values and the difficulty of obtaining materials have made value-add renovations less cost-effective than new builds for investors. Not to mention, new construction always brings higher demand and higher rents and, in some markets, a must better return on investment than rehabbing an existing property.
The pandemic made everyone more comfortable with handling business online. The real estate market has seen a considerable increase in virtual property tours, drone videos, virtual staging, and more. Homebuyers and renters are increasingly finding their next place to live with no human interaction at any point in the process.
Real estate investors who can adapt to new technology and provide a seamless, digital experience to buyers and tenants will enjoy better opportunities in 2022.
Master leasing is a new, creative strategy. The system is one in which the property owner maintains ownership of the property while a new “landlord” steps in, handles property management, and receives the rent. This frees the owner, usually a retiree, from the hassle of dealing with tenants while allowing them to keep the property as an asset for future generations.
Any time the economy suffers, self-storage becomes a viable real estate investment. As millions lost their jobs, people had no choice but to downsize or move in with family and friends. This created a greater need for storage facilities.
The long-term effects of the pandemic coupled with a looming recession could make storage facilities a good investment in 2022.
Commercial Real Estate Investing Trends 2022
The pandemic continues to rock the commercial real estate market and exacerbate pre-pandemic market trends. The changing market presents new challenges but also plenty of new opportunities.
Before you make an investment in commercial real estate, it helps to understand how the economy and workforce are changing. Let’s take a look at some of the biggest commercial real estate trends forecasted for the second half of 2022.
As we continue to shift from retail shopping centers to e-commerce, the need for industrial warehouses, distribution centers, and logistics centers will continue to grow in demand. We will see the price of industrial properties continue to trend upwards as retailer demand for inventory storage, cold storage, and data centers increases.
Office buildings have historically been a safe investment for real estate investors. The thing is, workers are not returning to the office in droves as once predicted.
More employers are implementing permanent work-from-home and hybrid models. They are now unsure what sort of office space they need.
We are seeing a rise in the “trophy office.” A trophy office is a stylish, modern office designed to attract employees. They offer amenities collaborative spaces, comfy furniture, and even nap rooms.
Not unlike the “middle neighborhood” trend, mixed-use zoning is becoming a hot investment trend in 2022. Hybrid buildings that house retail, office, and apartments within one building are on the rise. Repurposing vacant commercial buildings into mixed-use spaces will be a solid real estate investment for years to come.
Hotels and Hospitality
Business and leisure travel is on the rebound in 2022. Hotels continue to contend with the vacation rentals. They also are still recovering from COVID-related travel restrictions.
The hospitality sector is having a sort of renaissance in 2022.
Hotels all over the country are adapting. We are seeing luxury spa and resort-style renovations, new construction, and mixed-use properties.
Despite setbacks, investors are embracing the hospitality and accommodations industry as a recent influx of first-time hotel investors entered the market.
Sustainability isn’t going anywhere. Amazon, Starbucks, and Apple are a few of the global giants that have pledged to go completely carbon neutral in the next two to three decades.
The demand for green building features, energy efficiency, and sustainable materials will only increase as businesses face mounting pressure to achieve carbon neutrality.
Invest in Real Estate in 2022 with LendSimpli
The best time to invest in real estate was five years ago. The second best time is today. Do you see an opportunity in one of the many exciting real estate investing trends in 2022?
Do not wait to start building wealth through real estate. With so many robust opportunities in today’s real estate market, there’s never been a better time to enter the world of real estate investing.
Just as the name implies, LendSimpli makes the process of obtaining a real estate investment loan simple. Whether you’re investing in a single-family rental, a multifamily unit, a flip house, or a commercial building, LendSimpli has loan products to fit your situation.
You will enjoy passive income from a safe, appreciating asset as a real estate investor. Start your LendSimpli loan application today.