How COVID-19 has affected the real estate market
Almost a year ago, when the first cases of COVID-19 occurred in Wuhan, China, few could have imagined the scale of events ahead. Now some countries are gradually easing restrictions. Nevertheless, experts predict the long-term impact of the pandemic on all areas of life and the economy in particular.
Savills' global sentiment survey, conducted in 31 countries around the world, examines the potential changes in the real estate market under the influence of the pandemic.
Business premises
Despite a wide spread of remote forms of work amid the pandemic, offices have not lost their significance not only as a place of work, but as a part of culture and social communications.
However, the situation has led to significant changes in corporate placement strategies, office design and management, and tenant practices.
Many corporations allow flexible work schedule in one way or another for many years. However, most of employees working out of the office after Covid-19 for an extended period of time can be a catalyst for accelerating the transition to flexible work hours.
According to the Savills Global Sentiment Survey, conducted in 31 countries around the world, 84% of respondents expect a small increase in working from home, while the remaining 16% expect a significant increase. More than half expect the usage of videoconferencing to increase significantly after the pandemic.
What was expected to develop gradually, under the influence of COVID-19, changed instantly.
In the future, it is expected to move to different deployment strategies and a hybrid model combining work from home, local office centers and head office.
If home is to become a more important place of work, it will ne necessary to give consideration to a long-term work-from-home policy. Cybersecurity and privacy, health and good ergonomics of the home office - all this needs to be managed.
In some countries, especially developing ones, slow home internet connection or high population densities make working from home impossible.
The increase in the number of people working from home is not the only trend that could change the office space. The safety, hygiene and well-being of employees are at the center of attention.
About 63% of those surveyed expect office density to decrease. Organizations that have adapted well to remote work may reconsider future office functions and eventually reduce office size requirements. The net impact on demand will depend on changes in job design.
Although Savills’ researchers expect a slight drop in demand from tenants, they are less pessimistic about investment activity in offices. Half do not expect any changes due to Covid-19, a third predict a decrease in activity, and the rest expect an increase. This reflects the continued demand for real estate from investors looking for long-term reliable sources of income and the relatively good profitability that this sector offers.
Logistics
Supply chain diversification and the growth of regional production centers are expected in the logistics sector.
Thanks to the global growth of online commerce, logistics was already in vogue. The pandemic is expected to accelerate its ascent. Some online retailers, especially supermarkets, have struggled to keep up with rising demand from consumers during the lockdown by pushing their supply chains to the limit.
The market is predicted to deepen in the long term as more people than ever before use online shopping.
Further investment in the logistics space will follow to serve this demand and ensure resilience to future surges in demand. About 63% of country research leaders expect to see some positive impact of Covid-19 on tenant demand in the logistics sector.
Globally, one of the most tangible impact touches production and the supply chain. Just-in-time inventory means that margin of safety for even the slightest failure is minimal, resulting in empty warehouses and shelves.
Companies may consider the possibility of diversifying their supply chains across multiple regions around the world to guard against future incidents.
The shift of production to the domestic market could actually dampen the demand for logistics as supply chains shrink.
Retail
The growth of online retail trade is expected to accelerate, but shopping is a sensory experience and the push for physical retail will remain. Particularly in emerging markets, shopping is a form of entertainment and a hallmark of the growing middle class.
Researchers in India, Indonesia and Thailand pointed to a more positive outlook for the sector after the pandemic passes. These countries have one of the lowest levels of e-commerce penetration in the world, and for most consumers, physical retail is still the only form of commerce available.
Hospitality sector
The hotel market was one of the hardest hit by the Covid-19 pandemic in terms of operational performance. International travel restrictions and national lockdowns have resulted in the closure of many hotels around the world.
Short-term problems, related to demand and the recovery of operations will still remain after removal of travel restrictions. However, long-term fundamentals driving demand remain, with many experts predicting that hotel performance will return to pre-pandemic levels by 2022.
International leisure travel may be affected by some of the continued nervousness associated with long-distance travel, at least in the short to medium term. Demand is expected to recover sooner for holiday destinations with good international rail and road links than for those more dependent on air links.
Institutional residential sector
The outlook for multi-family housing remains positive, with 55% of countries expecting no impact on investor demand in the sector, and 27% expecting a positive impact.
About 67% of those surveyed expect to see a slight negative or negative impact from the pandemic on tenant demand for shared accommodation, although only 52% expect to see a negative impact on investor demand. This indicates that the main need for quality rental assets remains, especially in large cities with a high concentration of young professional migrants.
Student housing is a sector that is growing rapidly as the number of international students grows. After rapid development in the US and UK, the sector is gaining momentum in Australia, continental Europe and in strategic regional centers such as the UAE.
The Covid-19 pandemic has turned the higher education sector on its head overnight. Education has moved online, exams have been postponed and student travel has been halted.
In the future, regional centers located closer to the international student market could benefit from, for example, Malaysia and the United Arab Emirates, as well as some low-cost European destinations. In Germany, for example, the cost of education is negligible for both international and local students.
Students will seek to maximize their investment, and the most established university cities in the US, UK and Australia will continue to attract students from all over the world, in their turn supporting the student housing market.
Housing sector
The increase in home-based work has a direct impact on the housing market as households reassess their needs. The Savills survey shows that 90% of executives expect demand for home offices to grow, and 86% expect demand for high-speed internet to increase.
The lockdowns have also highlighted the value of access to private outdoor space, with two-thirds of respondents expecting demand for it to increase. These are factors that developers around the world need to consider when designing future homes.
Nearly half of Savills R&D leaders believe that demand for rural/suburban offices will increase, while the rest expect it to remain unchangeable. However, there were slightly more European research leaders anticipating this trend than in the Asia-Pacific region, where urban life is more prevalent.
A survey of potential buyers and sellers shows that Covid-19 has substantially increased the attractiveness of luxury real estate in rural areas. This is partly driven by a desire to have better access to outdoor space, coupled with the prospect of working from home more regularly.