The COVID-19 pandemic caused incredible upheaval in the real estate industry. From the rise in inner-city rental vacancies and subsequent price drops to the increasing pressure on rural and suburban home prices, there are few areas of the real estate industry that COVID-19 did not touch.
As the world begins to recover from the severe economic disruptions caused by the pandemic, many real estate investors want to know what will happen next. While we cannot make specific predictions, we can track the trends that led us to this point and follow them to their logical conclusion.
COVID-19’s Effect on Office Properties
One of the major impacts that COVID-19 had on the business world was the shift from in-office to remote work. Companies discovered that their employees could work from home productively, in some cases beating their performance from before the pandemic. However, most supervisors expressed a desire to see their teams in person. As vaccination rates have risen, many companies like Morgan Stanley are mandating the return to full-time work as long as their employees are fully vaccinated.
What does this mean for office property investors? Many companies may wish to shrink their office capacity to less than one desk per person. This would compensate for the many hybrid work arrangements that are likely to go into effect after the pandemic. Companies looking for office space may need smaller subdivisions in buildings. They may shun higher-grade office space in favor of more affordable spaces.
The outlook for office space is mixed, but as the pandemic continues to ease, this situation may change. It will depend on whether certain parts of the country can turn their lagging vaccination rates around and whether employees feel safe returning to work.
Commercial real estate investors are advised to pay attention to the shift in desirable locations, especially where office real estate is concerned. Many professionals have fled the nation’s urban centers in favor of the suburbs. It is entirely possible that many of these professionals will not return to the city, despite recent developments. Office real estate in suburban and exurban areas may become more desirable as an investment.
Commercial Properties After COVID-19
Many types of commercial real estate were negatively affected by the pandemic. Around the world, demand for some types of commercial real estate, especially office, retail, and hotel space, has declined. The effect of the downturn in commercial real estate sales has put pressure on sale prices and reduced the amount that owners could expect to get upon selling their properties. This could lead to a lower credit rating for borrowers and cause lenders to lose money. On the other hand, industrial real estate, data centers, cell towers, and health care properties have positively impacted price and demand.
Residential Real Estate Investors
The residential real estate market experienced a boom during the pandemic. Many people decided that if they were going to be immured at home during the pandemic, they wanted to be in a larger and more practical space for at-home work and school. As mentioned above, many professionals moved to the suburbs when their workplaces closed to in-person attendance and shifted to online work.
Residential rents are beginning to return to normal in urban areas in the post-pandemic landscape, meaning that this may be a good time to invest in these properties.
Across the United States, residential real estate prices were up 17 percent between March 2020 and March 2021, according to the National Association of Realtors. All regions of the country experienced double-digit price gains over this time period.
The market was incredibly tight, with not enough houses on the market to meet demand, so prices were pushed ever skyward. Many millennials and first-time homebuyers have been priced out of the market.
Signs point to a possible correction in the housing market, and investors should be wary of buying homes with significantly inflated prices. Attempting to time the market and catch the last stages of the price upswing could be extremely risky and lead to financial losses.
A Cautious yet Optimistic Outlook
Investors should be aware that lagging vaccination rates in certain parts of the country, like the Midwest and South, may lead to further restrictions and lockdowns in the future. Investing in these areas should be done carefully. Caution is also advised in the residential real estate sector, where a correction may be on the horizon.
As always, real estate investors should understand that they need to be careful when putting their money into certain properties.