The coronavirus has not just affected our health but as well as our economic safety net. All industries are affected one way or another however it has become a concern for the real estate industry in which relies heavily on social interaction the change will dramatically change the landscape for both residential and commercial. To help find some possible answers I attended, as a CIMA Law Group management assistant, a webinar created by NAR( National Association of Realtors) called NAR-Commercial Economic Issues and Trends Forum to examine trends the industry is currently facing during this unprecedented time and how the industry can adapt to a new way of doing business.
The Good
The industrial, self-storage, and property development are in good shape and are projected to be stable into 2021. Because of the rise of online purchases and the need to store more stuff, Mr. Yun believes industrial and self-storage sectors can thrive in this pandemic and post-pandemic era. Furthermore as many people are uncertain of this pandemic and its economic consequences, more people are likely to buy apartments which will increase the need for multifamily properties in cities and suburbs. It seems that house development and land property will struggle however Mr. Yun believes for now a housing development and land property can be stable into 2021 as of now residential investment grew to 21% which indicates it is in a stable state. Now the question of how can residential investment grows into the pandemic era and post-pandemic era? well for the most part people still very much desire housing and that with the possibility of working from home a reality people are looking towards properties they can have the space for work.
The Bad
We all know this economic crisis we haven’t seen since the great depression. It will be years to regain what we lost in such a short amount of time with more than 33 million unemployment and loss of -4.8% of GDP. Tough it looks very grim Mr. Yun wanted to make clear that real estate will be stable into 2021, however there are always parts that are the hardest hit and for the real estate industry the hardest hit is that of retail. The real estate commercial industry for retail has been for a time in a sharp decline. From 2018- 1Q20 people are looking more towards that of E-commerce and which is already burdening retail properties like malls and small retail businesses. As well for commercial properties are now struggling to pay rent as many were incomplete lock down and could not pay their property landlords which could create a situation with the loans as they become less valued and in the future create a situation where properties are bought by the fraction of its worth. Along with the Vacancy rate based on the model shown in the webinar by Mr. Yun showed that there was a 19% Vacancy for retail, a 22% vacancy for hotels, and an office’s vacancy of 13%. It shows a possible issue for the commercial industry which could deeply affect in its near future however it is not certain if vacancies will be a long term issue or a short term and when properties will be back to on their feet to generate income so they can pay their property rent and such.
Trends
Some aspects of our life are temporary changed but there will be lasting impact on where we do our work post-COVID-19. For real estate, some parts will keep going while others may drastically change forever. But it is the sincere belief that real estate can thrive if it can recreate itself for a possible society that is more socially distant. Mr. Yun believes instead of an urban revival we will see in the near future the revival of the suburb. If we do see a trend come were workers stay home, many will desire to move to the suburbs that allow them to have cheaper prices and bigger spaces. It would be essential that houses be big enough where they can have the necessary space for work and could separate work and personal space. As well many businesses could use more properties in the suburbs and as well create less traffic.
However it could drastically affect commercial properties in the city that rely on companies to have people go to those properties for work. The current state of commercial real estate properties like office spaces are in a neutral position. whether it could either change its properties to the standards of social distancing or negatively impact it as the appeal lessens for large office spaces because of the risk of illnesses. If the commercial industry wants to keep office properties running they may need to change the basic layout of the space so that it is compatible with socially distant clientele or create large properties for business to rent for their remote workers. Many people want to be safe when they work but feel the unease of returning to big office spaces but at the same time feel it would be too difficult to work from home and so an idea that was proposed by Lawyer Louie Lujan, the Director of Government Relations for CIMA Office and who manages real estate cases in California and Arizona for the firm, has suggested having a middle ground in which a large commercial property can be rented out to multiple businesses in which allows a certain amount of people who work at home to schedule time to come in do their work without having the risk of crowded office space. As well the property could guarantee to have the area to be cleaned after each use and to have laptops and supplies for the workers when they come in. The idea is to shrink the large office spaces and designate people who work from home to go to certain properties throughout the city or suburb to do their work without them feeling completely isolated from home as a remote worker. For commercial real estate it could keep large office properties and could make income from the rents of businesses.
Medical Armory Malls
Lastly One of the biggest things Mr. Yun suggested for the future of retail properties is that to use empty retail malls as armory storage for medical supplies, which is a strange but clever idea at the same time. Like I said retail has been struggling for years and for many people the soon extinction of large malls could be in the near future. Now the question is how can we reuse large amount of space like malls and one possibility is to stockpile for medical items and use it as a make shift hospital. It would just help our hospitals which struggled immensely during this COVID-19 pandemic but as well better prepare for possible next pandemic or a next disaster in the area. But in general we could be at a future were real estate can benefit from selling or renting properties to hospitals or medical offices like in malls or retail spaces for not just saving these commercial spaces but as well helping our medical community.
The future is still unknown for the real estate industry, nothing is set in stone all could be well or be taken away a quick instant. Fate will decide as we progress in this economic instability in this country and the world economy. However having some basic knowledge and opinions by NAR’s top Economist and Senior Vice President of Research Mr. Yun it seems that real estate can overcome this hurtle like it did so many times before.
– Brittany Koehler
CIMA Law Group Blog 