Avner Motaev manages several companies in the real estate and telecommunications industries. He is the founder and CEO of mobile2business and lives and works in Vienna.
Predicting the future is never easy. If it was, real estate investment – in fact investment of any kind – would be a lot simpler, and we would all enjoy far greater success than we already do.
But of course, it is the uncertainty of any investment that creates that all important element of risk. And it is our own individual appetite for taking on that risk, and the decisions we make as a result, that then defines the scale of the returns we see.
So, no one can ever accurately predict the future, particularly when it comes to the property markets. But what we can do is take advantage of the vast amount of data we have available to us to make sure we can get as close to the truth as possible. As with any investment decision, we must build a real estate portfolio based on informed decision-making. And part of being able to make the right decisions is to understand the underlying trends shaping the market.
With this in mind then, what are the top trends for real estate investors to watch out for this year? Here, I’m sharing a few of my thoughts to help you make better, more informed decisions in the real estate market in 2019.
Geopolitical uncertainty impacts the property markets
Markets hate uncertainty, and with Brexit being pushed further and further back, with no clear resolution in sight, there will be plenty more of it throughout the rest of 2019.
Of course, it’s not all about Brexit. There are concerns about the viability of the governing coalition in Germany and the political situation in Italy too. And, on a global scale, we’re seeing the fracturing of traditional trading agreements such as the North American Free Trade Agreement (NAFTA), and an ongoing low-level trade war between the US and China that could grow more serious at any moment.
None of this is beneficial, either to property investors or to the broader global financial markets as a whole. And it doesn’t look like things will settle down any time soon.
Just a final point on the ongoing political uncertainty in Europe, however, and the effect it might have on the real estate market there. In 2019 we may well see an interesting side effect from a messy ending to the Brexit saga. This is the return of many EU workers from jobs in the UK to their home countries. These returning workers (up to 132,000 at the last count) represent a real opportunity for the economies of their home countries. Places like Poland, Romania and Hungary could see a subsequent boost in their own domestic rental markets.
2019 sees higher demand and fewer properties to meet it
In addition to this underlying geopolitical uncertainty, there is another key trend that will continue to impact real estate prices in most European markets, and potentially dampen activity: the lack of availability of suitable assets.
Over in the US we’re already seeing the impact of this as prices rise in a market where property building isn’t keeping pace with demand. This is creating an affordability problem. Last year over half the real estate properties in the US’s top 50 markets were considered to be overvalued.
We’re seeing a similar situation in Europe, as demand rises – and rents and property prices go up with it. Clearly, this brings immediate benefits for those of us who already own property in these areas. But, we could see a longer-term impact on new investors struggling to get a foothold in the market if the trend continues. Combine this with the risk of rising interest rates and it is clear that the market could slow somewhat as we move through 2019.
There’s a chance we could see changes in monetary policy too, particularly in Europe as the ECB phase out their quantative easing programme and potentially raise interest rates. With yield levels already low in some sectors of the real estate market there, fewer suitable properties and a potential rise in interest rates, it could all add up to a cooling of the market this year.
It’s a trend that will require an innovative response from potential investors. They might want to look at less traditional real estate sectors such as urban logistics or tech infrastructure such as data centres as an alternative investment opportunity. As always, finding value in a tight market will be key to getting a good return.
Tech is transforming the real estate sector
Real estate is a sector that is ripe for technological innovation and it is clear that in 2019 we are going to see some big changes in this area.
Real estate businesses have traditionally put relatively little investment into researching and developing tech solutions to their customers’ needs. Recent research shows the percentage of investment in tech innovation among European real estate business struggled to rise above one hundredth of one per cent of total production.
But it is also clear that we’re finally seeing the rise of ‘proptech’ start-ups that are determined to shake up the market. In 2019 we’ll see their continued impact in several areas. This will include tech that can deliver innovative financing solutions, as well as technology such as blockchain encryption that will make transactions in real estate simpler, more secure and efficient.
As always, it pays to follow the money when it comes to predicting trends – and according to the experts at Forbes, in 2018 around $5.2 billion was put into property technology start ups. That kind of investment is almost certain to bear fruit throughout 2019.
Investors need to look beyond traditional real estate
This is another area in which technology is already beginning to have a big impact on real estate investment opportunities. As the digital economy continues to grow throughout 2019, we will see more and more investment in the infrastructure required to support it.
This could mean everything from data centres to 5G network infrastructure. Data centres are all set to be an area of opportunity for real estate investors who are prepared to step out of their comfort zone a little and look at alternatives to traditional real estate.
The experts at CBRE suggest that, unsurprisingly, this growth will be driven by Chinese tech and telecom companies looking to build the digital infrastructure they need to expand. Where investors once put their money into rail or utilities, in 2019 we’ll see a rise in investment in the infrastructure that supports the digital revolution.
So, there are big opportunities for real estate investors in this area in 2019, as long as they are prepared to look beyond traditional assets and form the strategies required to exploit this potential.
Ultimately, we’re seeing a real estate market that is currently still offering good returns for investors in the face of headwinds created by ongoing geopolitical uncertainty and low availability of suitable assets. But a big opportunity for investors lies in how well we can now use the speed, flexibility and efficiency that new property technologies can offer.
Everything from international trade disputes to rising interest rates could put a dampener on growth. But the underlying health of many economies (particularly in central Europe) suggests that demand for properties will continue to grow throughout 2019.