Transforming the real estate sector
The real estate sector has been affected by the COVID-19 pandemic in unprecedented ways - and if we focus on the financial side, the impacts are already visible. Some asset classes, especially those with greater human density such as student housing, malls and healthcare facilities, had the hardest shock and have already been sold off in considerable numbers. Other will be negatively affected later due to variations in occupier demand, since as human footfall is restricted, so consumer confidence dampens.
Even with the short-term benefits of increased e-commerce, the yield from logistics real estate could drop off, as goods and human movement slow down. The lockdowns also shrank the expected rate of return for letting and construction considerably. The development of new sites has been delayed; many normal human activities have been curtailed, and social distancing measures will put a drag on the ability of commercial premises to generate steady cash flows.
The level of uncertainty in the economy is currently at an all-time high with the trajectory of the recovery difficult to forecast. Although there has been no global joined-up policy response, individual countries have taken major steps to try to cushion their people and economies through this difficult period. We look to the economic outlook and policy steps, but would advise against putting too much weight on a specific-point forecast until the future pathway becomes clearer. In the real estate sector, we can see that the pandemic has accelerated some trends already in evidence, whereas other trends may reverse. For example, demand for online shopping has increased and will likely continue, while the ongoing trend for the densification of work and living space is now under scrutiny. Across sectors these trends differ and have varied implications for real estate demand. We examine each sector to see what their future characteristics may look like.
Given the level of uncertainty around the length and duration of distancing measures globally, it is almost impossible for specific-point forecasts to be accurate.
Studies have been carried out in the last couple of weeks which clearly indicate that the lockdown has brought about a change in the general buying behaviour. People are tilting more acutely towards e-zones for most day-to-day activities like making new connections, playing games, buying essential groceries or even for their dose of daily news. One great benefit is remaining connected and being able to drive transactions with convenience and more importantly, while keeping a safe distance. As people are more sensitive and perhaps doubtful about what the future holds, conservation of capital may be a guiding thought influencing their decisions. In such a scenario, it will be almost impossible to motivate people by conventional marketing to step out for site visits and seek real estate.
To stay relevant, many real estate companies have started spending exponentially more on an array of digital marketing solutions and other productive online tools like e-mailers, virtual walk-throughs, digitours, personalized video presentations, to enhance brand value and build trust without a physical face to face.