When you think about commercial real estate investments, you probably think of apartment buildings, office space, retail, industrial, and hotels. In recent years, Institutional investors and developers have been narrowing their investment horizon into niches of these traditional and not so traditional sectors. They've been specializing in niches like student housing, seniors housing, medical office buildings, and self-storage facilities. These and other nontraditional commercial real estate sectors are worth taking a closer look at.
Farmland. Although it fell out of favor following WWII, farmland has been commercially exploited since the beginning of written history. Mostly in the form of leasing and sharecropping. Recently, the Gladstone Land Corporation became one of the first publicly traded farmland REITs. This company invests in farms that grow annual farm crops, as well as investing in storage facilities, processing plants, packaging plants, and distribution centers.
Data centers. There can be little doubt that technology will continue screaming forward at break neck speeds. Cloud storage of all this data has made its way to the forefront of today's technology. But there's no cloud out there. All of that data requires millions of square feet of specialized storage facilities and equipment. Networking firm Cisco, estimates global “cloud” traffic will quadruple between 2013 and 2017, to 5.3 zettabytes. Whatever a zettabyte is?
Billboards. You may not think of roadside advertising billboards as real estate but that's how the IRS qualifies them, which means they can be expensed and depreciated like commercial real estate. There are REITs working on this commercial real estate model. With billboards you at least don't have to deal with live-in tenants.
Self-storage. All across the country, self-storage facilities are coming online. As baby boomers downsize, this market can be expected to continue growing. Currently, demand exceeds supply and according to research by Marcus & Millichap Real Estate Investment Services, this commercial real estate sector will continue growing by double digits for years to come.
Student housing. Since the turn around from the recession, developers have been stepping into the student housing market where state institutions once dominated. The state universities and colleges seem to be fine with this since it frees up limited funds for better academic uses.
Medical buildings. This asset class is only going to grow from the combined pressures the Affordable Care Act and the millions of baby boomers needing more medical care as they age. The trend is towards more localized, lower cost services adjacent to the more expensive hospital settings.
Several types of senior housing. Along with more medical facilities, the tens of millions of retiring baby boomers are driving up the demand for more senior housing. This comes in several forms that vary from 55 and over secure communities of smaller houses, to assisted care, to fully staffed nursing home facilities.
Although some or all of these emerging opportunities will become highly profitable, you still need to perform your due diligence. There's probably not enough money to go around for the wants and needs of everyone. The market for the Millennial and Generation X first time homebuyers didn't make the list because it appears to now be served by the institutional rental house REITs that have come to dominate the market. Also, after the baby boomers pay for their children's student housing and education they may have to put off moving into senior housing for many years.
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Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.