COVID-19 Heads Top 10 List of Factors Affecting Real Estate
The effect of COVID-19 could lead to increased demand for real estate—think about the need for social distancing in business, government and entertainment venues—or lower demand as virtual work expands.
COVID-19 tops a list of the 10 interrelated factors impacting the real estate sector, in a list compiled recently by The Counselors of Real Estate that describes the coronavirus as the “greatest environmental experiment of our real estate lives.”
The 2020-21 Top Ten Issues Affecting Real Estate, discussed recently in a webinar with real estate editors, shows the deep effect of the pandamic on factors affecting the real estate market.
“The change wrought by the COVID-19 crisis and its aftermath will teach us about priorities, resilience, and demand in ways that we did not dare test before,” Michel Couillard, 2020 global chair of the CRE, said in prepared remarks.
He noted that the top 10 issues are “highly interrelated” and the list attempts to explain the effect of the coronavirus on an already dynamic real estate environment.
Pointing out that real estate is a lagging industry and the effects of the pandemic may not become clear for several years, the CRE report list suggests that COVID-19 may lead to increased demand for real estate — due to the need for social distancing in business, government and entertainment venues — or lower demand as virtual work expands.
“Demand will be defined by the extent to which this crisis leads us to abandon old habits and adopt new ones,” the CRE writes.
Economic challenges are the second largest factor facing the real estate industry, according to the report, with significant segments of the economy “debilitated” in the wake of the pandemic. Those include leisure and hospitality, retail, air travel and construction, which are likely to rebound slowly into 2022. Also, the CRE list notes, the health care industry is facing a squeeze because of the coronavirus crisis, and the stay-home orders are affecting state and local tax revenue.
“Such risks suggest an unusual “W-shaped” recession, a second contraction following the initial improvement of a partial economic reopening,” the CRW wrote.
Next on the list are other economic factors are capital market risk, and public and private debt.
According to the CRE, volatility has spiked since the middle of March, which makes it more difficult to price debt. And as for the public and and private debt, real estate is local and the value of commercial real estate can be affected by local debt that’s paid by local taxes.
Affordable housing, the next challenge on the list, was an issue even before the COVID-19 pandemic, with the shortage strongly affected by a “Not in My Backward” mentality. The CRE said solutions include expediting the approval process for affordable housing, expanding taxpayer-funded front-end subsidy programs, and strategic use of zoning.
Sixth on the Top Ten list is the flow of people, which has been slowed by the pandemic and by restrictions to immigration, which leads to reduced demand for housing. Space utilization, which is seventh on the CRE list, is also expected to have a lasting impact on the design and use of real estate due to the pandemic as the safety of building occupants is a vital focus.
Rounding out the list are technology and workflow; infrastructure; and environmental, social and governance (ESG) factors.