The novel corona virus, COVID-19 has deeply impacted the global economies reshaping the way the world has been interconnected. Additionally, it has also impacted how we conduct business and how we live our life.
Real Estate Sector Is Not an Exception
Real estate sector has come to a standstill owing to the uncertainty prevailing in the economies of the countries across the world, marked by national lockdowns, mass quarantines, closure of labor-intensive businesses for the purpose of maintaining social distancing, etc.
The widespread of this highly communicable virus has transformed the needs of real estate sector smashed by twin crisis; need to rethink the design, purpose and the sustainability of the construction work along with shaping cleaner and greener livable spaces that are fit for the future.
The financial impact of COVID-19 on the real estate market in the US real estate market is already visible.
Fall In the Value Of Real Estate Assets
According to findings, the unlevered enterprise value of real estate assets has crashed by 25% or more in most sectors, hospitality, and leisure being the worst hit.
Real estate asset classes that have greater human density such as commercial spaces, malls, student housing, hospitals, and healthcare facilities are being sold off in a considerable number. Other real estate projects are also getting affected due to the decreasing number of occupiers’ demand. The human footfall is restricted that hampers the real estate investors’ confidence in investing in rental properties.
Impact of Lockdown
The impact of lockdown has shrunk the expected rate of return from renting and construction considerably as the human movement has been curtailed and the social distancing measures put barricades on the ability of commercial premises to generate stable cash flow.
In the US, new construction sales centers are vacant. Real estate agents can’t show houses in most of the states. Inspectors won’t inspect. Appraisers can’t appraise. Even cash buyers willing to waive contingencies can’t get an appointment. Closings for homes that went under contract before lockdown are complying with stay-at-home orders and social distancing guidelines and holding meets virtually.
America’s Worst-Hit Area
In America’s fifth-most populous city Philadelphia, residential and commercial construction sites are closed completely, except for critical need projects like hospitals and prisons. Swinging a hammer is technically, temporarily illegal here.
The Brighter Side of the COVID-19
The brighter side of COVID-19 spread is that consumer demand has shifted towards more efficient properties. People are demanding more flexible residential properties where they are likely to live and work intensively complying with remote working. The lack of flexible spaces and efficient energy systems has set in the demand for new properties which are more efficient and high quality offering a safe and healthy living and working environment.
Long Term Impact
Over the long term, the impact of COVID-19 on the real estate market remains an attractive asset class that continues to offer good risk-adjusted returns, less correlated with other asset classes.
Asset owners and investors are struggling and will mitigate risk deriving from tenants and users, rising demand for high-quality efficient buildings that are safe.