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For most of 2020, The COVID-19 pandemic has impacted virtually all industries, and the real estate market—both commercial and residential—is no exception. An industry centered on the inhabiting of and interactions within a space has faced immediate challenges that are predicted to last for the foreseeable future. In this post, we’ll explore how both real estate markets have shifted since the pandemic hit, and how current circumstances will likely inform sweeping changes for the industry for years to come.
Residential Real Estate
Moments of prolonged uncertainty undoubtedly fuel rumors both on and offline, and the housing market amid a pandemic hasn’t been immune. Residential real estate has had its share of half-truths over the last several months, ranging from whether or not this is a good time to sell your home, to whether suburbs are expected to boom again as everyone is fleeing the cities.
While home listings in July dropped 14% compared to July 2019, a low housing inventory has created a strong seller’s market. The high demand for homes coupled with low inventory and low mortgage interest rates has resulted in bidding wars and higher selling prices, making it an ideal scenario for those looking to sell.
And while it’s not necessarily true that city dwellers are running for the suburbs, there has certainly been a spike in interest in the neighborhoods surrounding cities with notoriously high living costs.
Numbers aside, buyers’ needs have also shifted since the start of the pandemic. As entire families are now spending their days at home, doing everything from working to learning to digitally socialize, buyers’ top priorities when considering a property include extra bedrooms, open floor plans, good lighting, and kitchen style.
The colossal shift in how and where people are working has fueled the desire for more space and getting more bang for your buck, and so while the pandemic has slowed the home viewing and buying process, it certainly hasn’t dampened people’s desire to pack up and relocate.
Commercial Real Estate
If investments in home offices have shot through the roof, what does this mean for large commercial buildings that have been sitting empty for months? Physical distancing and stay-at-home orders have changed the way people occupy space, and the effects of it are predicted to create transformative changes in city landscapes and the professional world at large.
As a result, not all real estate assets are performing the same way during the pandemic. Businesses that rely heavily on large crowds have naturally been hit the hardest: retailers, hotels, and healthcare facilities, to name a few. As e-shopping has spiked drastically and travel has been put on hold, it’s no surprise that certain industries have become less valuable investment propositions.
However, this isn’t to say that financial decisions should take a blanketed “one size fits all” approach. Landlords have faced lease concessions and abatement at a record rate and now, more than ever, the need for tailored, informed policies and practices is of paramount importance. Factors like tenant-renewal probability, tenant-default probability, and building appearance due to vacant spaces should inform—and encourage—individual decisions. While much of this might be new territory for commercial real estate professionals, this would be the opportunity to set clear protocols rooted in fact and fairness towards tenants, investors, and lenders.
Beyond the pressures of financial decision-making is the longer-term behavioral changes that are bound to happen in many professional settings. The popularity of open office layouts is likely to quickly reverse and we may see an uptick in the personal offices and cubicles of yesteryear. Building codes could also drastically change to accommodate public health officials’ recommendations. Common things that are constantly touched by hundreds of people—elevator buttons, door handles, soap dispensers—can be digitally updated to become sensor-controlled instead.
In the short-term, companies have worked hard to navigate the choppy COVID waters in a way that doesn’t disrespect staff and tenants while also facing difficult business decisions. The longer-term effects, while still only predictions now, are difficult to state with absolute certainty, though it’s safe to assume that the pandemic will inform how indoor spaces are used in the future, as well as how tenants and landlords relationships are defined.
A New World
The world has become increasingly more digital over the last decade, but the pandemic has created opportunities to leverage how and when it’s used. Will there still be a need for large conferences and gatherings post-pandemic? Will urban living pivot to accommodate the need for more open spaces, and if so, what does that mean for urban (re-)development?
Public crises often lead to innovative solutions that create a shift in how society functions in day-to-day life. The challenge is often whether people and industries can rise to the occasion and adapt, and those who can’t—or don’t—get swept away. While the COVID-19 pandemic has presented countless challenges, it has also allowed us to re-evaluate the real estate industry, modify, and reboot it.
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