There are many factors who contributed to real estate remaining relatively stable. Read our expert's insights below.
Supply and demand were well balanced prior to the pandemic
Many investors had a significant supply of dry powder
And interest rates have remained low
Each of which has contributed to support investor confidence in this asset type
But obviously, there are many things that will change at the margin. While the pandemic has undoubtedly had many immediate effects, its most significant impact has been to accelerate numerous structural shifts that were well underway before any of us had heard of COVID-19.
But there is a dichotomy in operating fundamentals among property types - industrial real estate, health care, data centres, and residential have been positively disrupted, while offices, hotels, and retail have felt the negative effects.
The challenge is to start the process of discerning the trends that COVID-19 has instigated and their long-term potential, while still in the second / third wave of the pandemic, such as:
- Based on our recent 2021 Emerging Trends in Real Estate survey, while the pandemic was an eye-opener, we see it as an accelerant of existing trends. It is telling that most investors said that the pandemic exposed shortcomings in their organisations’ digital capabilities.
- Retail will continue to adapt, and some sections of retail are actually performing well. Neighbourhood retail seems to be holding strong, despite shutdowns and online shopping, because it offers everyday convenience to nearby residents.
- Office space is not dead - office space is still a status symbol; will that change? Quite possibly but, at the end of the day, offices won’t be places we “must” be. They will be places we “want” to be, offering basecamp collaboration, coaching, communication, creativity and community. Most organisations recognise there is always going to be a need for office space. Maybe it will be less dense, maybe it will be more flexible, with people to work a couple days a week from home.
- Investment continues to be buoyant on the rent-yielding asset segment. Even during the lockdown, there has been good demand from investors for quality assets.
- Logistic distribution is strong and will remain strong. Increased consumer demand for same-day and next-day shipping will force online retailers to not only occupy distribution hubs within close proximity to their customers, but they also need to hold more stock on-hand, potentially increasing their spatial needs. Eager investors will have a hard time finding deals in industrial real estate opportunities, but for investors fortunate enough to already own warehouses, high rent prices and low vacancy rates will be a lucrative opportunity.
- Housing is a fundamental need, so there’s always demand – therefore residential will continue and has caught the eye of many investors as more and more of the population chooses renting over homeownership.