Editor’s Note: Today’s guest post comes from real estate investing platform CrowdStreet. CrowdStreet has an affiliate relationship with the site, but did not pay for this post to be published. All guest posts have to meet editorial guidelines to be published. We asked CrowdStreet to tell us the best markets and industries for real estate crowdfunding in 2021 in their view.
As we head into the second half of 2021, different metros will start recovering from the effects of the pandemic at different rates. While the state of the national economy can impact individual states and metros, regional factors like population growth, the employment base, and more tend to drive the value of real estate properties like warehouses, medical offices, and mixed-use retail buildings.
As a leading online real estate investing marketplace, CrowdStreet aims to provide our investor community with a variety of investing opportunities. One of the things our team considers when evaluating a deal for inclusion on our Marketplace is the market a project is based in.
In addition to those regional factors, our most favored markets also have some kind of subjective desirability. Whether we label this as a metro’s “vibe” or “quality of life,” CrowdStreet’s top 20 markets possess a curated blend of multiple tangible and intangible attributes that coalesce to create attractive communities.
Here are three of our top 20 markets for 2021:
Nashville is one of our top three markets from a 10-year growth perspective. In 2019, Music City was sizzling; the amount of transformation underway was simply amazing and its energy was infectious. COVID-19 may have inflicted damage upon its tourism sector in 2020 but, with a major airport expansion due to open in 2023, including new direct flights to and from Europe, the city is poised to recover and reach record levels of visitors. In the meantime, multifamily rents have continued to grow at 4% year-over-year.
In an Amazon-dominated world, it’s hard not to like the city that houses Amazon’s headquarters, not to mention the home of Microsoft, Starbucks, and Costco Wholesale as well. According to U.S. Census Bureau data, Seattle ranks as the #1 city for bachelor’s degree attainment at an astounding 62.6%. Along with Dallas Fort-Worth and Atlanta, Seattle is on the cusp of transitioning from secondary to primary market status.
Northern New Jersey
A solid interstate system, Newark International Airport, the Port of New Jersey, and proximity to over 23 million people make Northern New Jersey CrowdStreet’s #1 industrial market for 2021. This factor alone makes it a top 20 CrowdStreet market but, with apartments rents at steep discounts to Manhattan yet also offering more space, the Northern New Jersey multifamily market has been one of the major beneficiaries of COVID-19 induced migration out of Manhattan.
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Here’s a more in-depth look at some specific asset classes and where we see opportunity.
As the pandemic unfolded, we witnessed a noticeable shift in renter behavior as people migrated from highly populated urban centers to the suburbs. Driven by a shifting economy, the rise in remote work opportunities for office workers, and the desire to live in less densely populated areas, Pew Research found that more than one in five Americans have either moved during the pandemic or know someone who did.
Heading into 2020, apartment vacancy rates were at the lowest they’ve been in years. And while the existing pipeline of new units remained strong in Q3 2020, fewer than 300 new projects broke ground last year, the lowest velocity the industry has seen since 2012. Urban construction in 2020 was ~50% below the three-year average.
To put it simply, there are more renters than there are apartments, especially in markets experiencing a surge in population. And given it can take several years for new construction to be completed, multifamily development projects hitting the market in the next few years will likely lease up quickly.
When ranking our top multifamily markets, CrowdStreet prioritized markets that have demonstrated above-average rates for both population and job growth (with the expectation of those trends to continue) and included locations where current renter demand supports both densification and the arrival of new housing supply.
Our top markets for this category contain a blend of growing secondary markets (like Raleigh-Durham, Phoenix, Atlanta, and Dallas), smaller markets that are transitioning towards more institutional markets (Salt Lake City and Colorado Springs), primary markets we see bouncing back strong post-vaccine (Washington D.C. and Boston) and those “work from anywhere” beneficiaries (like Bozeman and Palm Beach).
As a percentage of all retail sales, e-commerce sales were already growing at double-digit rates over the past decade and the pandemic only accelerated that trend. The U.S. Census estimates that by the end of Q2 2020, 16.1% of all retail sales happened online as compared to less than 5% at the end of Q2 2011. E-commerce sales actually require more space than traditional brick-and-mortar retail, potentially three times the space as traditional through-put distribution.
Although construction deliveries have outpaced net absorption for the past six quarters, most of this new space was pre-leased, and net absorption in 2020 was on par with 2019. Industrial rents have grown year-over-year, and asking rents are expected to continue to increase year-over-year.
The industrial sector will need to meet the growing demand for this type of real estate by finding land in strategic locations with enough open space to accommodate its large footprints. We view the land limitation factor as a driver for rent growth, low vacancies, and increased tenant renewal rates.
Many of our top industrial markets, such as Northern New Jersey, Dallas-Fort Worth, the Inland Empire, and Washington D.C., are located in proximity to large populations with excellent access to highways, railways, and seaports. Such markets should also possess favorable ingress and egress, as well as exhibit strong underlying demographic drivers.
Create a free CrowdStreet account to get the full Best Places to Invest report and see our top markets by asset class.
As the recovery rolls out, individual markets and asset classes will undoubtedly change, and we will monitor and adjust accordingly. Many of our top markets, including Raleigh-Durham, Denver, and Atlanta, all exhibit strong trends we view as translating to sustainable growth over the next decade. However, we understand that supply can overshoot demand in the short term. To the extent that it begins to do so in our favorite markets, we will change our rankings to reflect the latest economic situation.
Editor’s Note: Crowdstreet’s compliance department requires that we publish the following: This article was written by an employee of CrowdStreet, Inc. (“CrowdStreet”) and has been prepared solely for informational purposes. The information contained herein or presented herewith is not a recommendation of, or solicitation for, the subscription, purchase or sale of any security or offering, including but not limited to any offering which may invest in the geographic area(s) or asset type(s) mentioned herein, whether or not such offering is posted on the CrowdStreet Marketplace. Though CrowdStreet believes the information contained and compiled herein has been obtained from sources believed to be reliable, CrowdStreet makes no guarantee, warranty or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the subject thereof. All projections, forecasts, and estimates of returns or future performance, and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions. CrowdStreet is not a registered broker-dealer or investment adviser. Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate.
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Personal Capital keeping track of his money. He's also exploring real estate crowdfunding platforms like Fundrise which are open to both accredited and non-accredited investors.