Challenges, opportunities, and the future of real estate
There is no question that the real estate industry will be impacted to some degree by the coronavirus outbreak, albeit differently according not only to the sector and market, but also to the duration of the current economic disruption. Although it is premature to make strong affirmations on what will happen going forward, I believe real estate will be relatively less impacted by the pandemic in comparison to other industries. Below I expand on some of the consequences the pandemic has prompted in our industry.
With countries issuing travel bans and people staying at home to reduce the spread of the virus, tourism and travel are experiencing a significant drop, thus making the hospitality the hardest-hit sector, with immediate effects on hotels, restaurants, bars, short-term apartment rentals, among others. As a result, once the outbreak is over we will likely witness a rise of domestic tourism, that is, people will be starting to travel within their respective countries instead of flying overseas for holiday. International travel will only resume much later, once it is safer to do so, and in a gradual manner too.
Retail and commercial real estate follow hospitality in the list of most affected sectors. When it comes to retail markets, apart from businesses selling essential items such as grocery stores and pharmacies, physical stores selling non-essential goods specially in prime locations with high rentals will suffer the most, facing a shortfall in sales both now and in the long-term because of the subsequent economic crisis. On the other hand, online retail will grow exponentialy, which in turn will help the logistics industry to catch-up. New models will emerge and opportunities will present themselves, in particular for traditional offline businesses which will begin to shift online. After the crisis, consumers will shift to online in virtue of its speed and efficiency and we will likely witness the growth and emergence of various applications, leading to a normalization of this new way of buying. Regardless of the commercial activity, communication between landlords and tenants is now more important than ever. They must stand together and prioritize survival over profit. As for agricultural real estate, this segment of the mark will be more and more demanded after the lockdown, as countries will turn to domestic production and try to become less dependant on imports.
With respect to the residential sector, particularly the category of primary homes – I believe it will display some level of resilience in comparison to other real estate segments. In fact, it is likely that we will see an emergence of affordable, low-cost housing developments and increasing support from governments in regards to creating new regulations following the pressure of an impending economic crisis. The second homes segment, on the other hand, will be more affected given its link to the tourism sector and potential travel bans in the future as well. It is, nonetheless, premature to understand what will be the true impact.
Another segment that will have to adapt to the “new normal” is co-living. Since the risk of transmission is potentially higher, spatial desging of common spaces will need to reflect the enforcement of social distancing, while still maintaining community.
With reference to office markets, as most of us are forced to stay at home and face-to-face meetings are curtailed, people are turning to digital platforms in order to continue holding such meetings, conducting trainings and coordinating work. Companies will see remote working as a viable long-term option, as the cost with transportation, rents, food, among others, is significantly reduced. Indeed, it is is bound to lead to consumer behavior in the long term, following a higher demand for remote work and collaboration technologies. Nevertheless, such practices are unlikely to pose a threat to office demand. Notwithstanding the fact that lockdown measures have hit the co-working sector considerably, it could also witness a higher demand in the future when facilities reopen but, similarly to co-living, will only survive if it adapts to the new reality. Spatial design plays an important role in the success of co-working, as well as sanitation and hygiene measures.
Make no mistake: the way we design cities will change. A new wave of urban planning will emerge, particularly in dense cities such as New York or London and Paris. The coronavirus outbreak is already rapidly changing the way we live, work, and play. Taking into consideration the fact that we spend 90% of our time indoors, whether in schools, offices or apartment buildings, it goes without saying that the real estate industry plays a pivotal role in creating safe environments, and thus can help control the transmission of COVID-19 as well as help prevent future outbreaks. As the link between our health and our environment becomes more and more evident, we will likely observe an increased focus on healthy buildings, from heating to ventilation systems, as well as an upward trend when it comes to suburban housing markets.
Despite the fact that it is fairly straightforward to evaluate the short-term implications of coronavirus on the global real estate industry, the long-term effects are difficult to forsee given the volatily of the situation at all levels worldwide. A new paradigm may be on the horizon, following a rethink of the way we live and work, and giving way to new operational models.
Some things are certain: adaptation is key and crisis generate opportunities. No matter the challenges COVID-19 poses to real estate, what will define the impact the current situation will have in our lives is our capabilty to adapt quickly and to turn crisis into opportunities. In fact, this could well be the best time to invest in real estate: after all, “bad times make for good buys.”
FIABCI World President 2019-20