Between building supply constraints and record home prices, many would-be homeowners may have to re-evaluate their perception of real estate. But there’s a segment of the population that’s flourishing – and a rental model that’s tailor-made to seize the opportunity.
“We are in a housing crisis,” says Circle Squared CEO Jeff Sica. “With all this inflation, there can’t be enough homes and apartments built to accommodate the people who need them. So, companies like Airbnb are filling the gap.”
And they’re not doing it in the way you might expect.
“It’s not necessarily people who go on vacation and take a week at an Airbnb,” Jeff continues. “It’s people who want a short-term lease, either because they can’t find anything else or because they’re working remotely.”
Remote on the Rise
With the booming popularity of remote work, more people have decided they can live and work from anywhere. And short-term rental companies are yielding the benefits – as many of these remote and hybrid workers celebrate their independence by booking homes both near and far.
In the third quarter of 2021, nearly half of the nights booked on Airbnb were for stays of at least seven days – up from 44% in 2019. One out of every five nights booked in that same period was for even longer stays – 28 days or more. [1]
These short-term, furnished apartments are proving to be the ideal choice for today’s “digital nomads” who seek the comforts of home without the financial commitment.
What is a Digital Nomad?
Since the start of the pandemic, at least one in three Americans has begun telecommuting. [2] A trend that was already on the uptick has become an ingrained part of the corporate culture. Digital nomads are those remote workers who take advantage of this independence to live, work, and travel wherever their mood takes them. (Unlike remote workers who choose to work from their own home.)
All they need is an internet connection, and they can work from anywhere.
Different Models. Different Needs.
Many digital nomads are leaving pricey metro centers like New York and San Francisco for small towns or destination spots. This shift mirrors a phenomenon many realtors call “Zoom towns” – once-small cities booming as remote work increases. (For example, the housing market in Truckee, California – once considered little more than a rest stop on the way to Lake Tahoe – saw a 23% increase in 2019 alone. [3])
As these remote workers search for their ideal living conditions, they’re shifting the real estate market. Prices in suburban and rural areas are increasing due to digital nomad-led demand. In contrast, many urban areas saw record low rental prices in 2020 as remote workers left metro centers. While this shift to smaller communities suggests that remote workers want to live where their dollar goes farther, recent data on rentals in New York City indicate that at least some workers are returning to their urban roots. [4]
Long-Term Considerations
With remote work here to stay, it’s worth looking at the impact it will have on real estate as a whole. Things that were once value-adds for renters and homeowners have become prime considerations. Features like high-speed internet, noise reduction, and dedicated office space have become of even greater importance.
And there are other consequences for owners and landlords. For example, remote and hybrid work is forcing property managers to rethink their approach to maintenance. Gone are the days when they could count on residents being gone all day for things like noisy construction or water shut-offs. As a result, communication is more crucial than ever before.
High rents, housing shortfalls, and the explosion of remote work have merged to create an entirely new dynamic for property owners. At Circle Squared, we help our clients act on changes like these in the world of private equity real estate. We do it by keeping on top of industry trends, news, and insights – to ensure every decision you make is based on thorough, vetted real-world information.
If you have questions about how these and other shifts in the market may impact your CRE portfolio, reach out today. We’re here to help.
The information contained herein is provided for educational purposes only, represents only a summary of topics discussed, and does not constitute personalized investment advice or recommendations. The views expressed herein are the opinions of the authors which may not come to pass and are subject to change without notice. Certain information contained herein is derived from third parties, and no guarantee is made as to the accuracy or completeness of such information, which has not been independently verified. Past performance is not indicative of future results. All investing involves risk, including the risk of loss of principal. Investors should be aware of additional risks associated with alternative investments due to factors such as economic downturns,, political developments, regulatory requirements, increased volatility, illiquidity, higher management fees, lack of performance history, currency fluctuation, and differences in auditing and other financial standards and that these risks can be accentuated in alternative investments. Alternative investments may be suitable only for those investors who understand and are willing to assume the economic, legal, and other risks involved. In addition, investing in real estate involves risks including, among others, those relating to illiquidity, economic downturns, market conditions, political developments, financing risks, property development risks, construction risks, property management risks, and tenancy risks.
The foregoing is not a complete list of the risks involved with alternative investments and real estate investments. You should consult your financial advisor to determine if such investments are appropriate for you given your financial and personal circumstances.
Circle Squared Alternative Investments, LLC (“CSQ”) is an SEC-registered investment adviser with its principal place of business in the State of New Jersey. Registration does not imply a certain level of skill or training. CSQ may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by CSQ with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration where the prospective client resides. For information pertaining to the registration status of CSQ, please contact CSQ or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). For additional information about CSQ, including fees and services, send for our disclosure statement as set forth on Form ADV from CSQ using the contact information herein. Please read the disclosure statement carefully before you invest or send money.
Sources:
[1] (Airbnb News, January 2022)
[2] (U.S. Bureau of Labor Statistics, July 2021)
[3] (NPR “Planet Money,” September 2020)
[4] (Federal Reserve Bank of St. Louis, February 2022)