3 ways COVID-19 has changed real estate investing for better or worse
The COVID-19 pandemic has had a profound impact on the real estate world, both residential and commercial. And while much of that impact has been positive, the pandemic has made things more difficult for investors in some ways. Here are a few ways real estate investing is now different.
How real estate investing changed for the better
In some ways, the pandemic has been a boon for real estate investors.
1. Borrowing has become cheaper
In 2020, mortgage rates plunged to historic lows and have remained competitive ever since. Although we start 2022 with higher mortgage rates than last year, they are still quite attractive. Because borrowing was cheaper, it gave investors and ordinary home buyers an opportunity to acquire properties.
2. Rental demand has soared
After a brutal 2020 that saw landlords struggle to collect rents and become so desperate they resorted to costly concessions, rental demand has increased dramatically in 2021. And rental prices have followed suit. Now homeowners are in a prime position to hold steady with higher prices. And those in cities with limited housing may benefit even more in the short term.
3. Industrial space exploded
The pandemic has changed the way many people shop. As of 2020, consumers are buying everything from clothes to household items to groceries online. This has caused a huge increase in demand for warehousing and distribution center space. And that has helped industrial REITs (real estate investment trusts) experience tremendous growth.
How real estate investing changed for the worse
The pandemic has certainly brought its share of challenges to real estate investors.
1. Houses have become super expensive.
While mortgage rates have been competitive throughout the pandemic, home prices have been out of control. Sellers have been hesitant to list their properties due to the uncertainty that has plagued the country since the crisis began. As a result, inventory was in dire straits, causing house prices to rise rapidly. Not only has this made things difficult for everyday buyers, it has also posed a challenge for real estate investors looking to add income properties to their portfolios.
2. Retail and hospitality took a major hit
While industrial REITs may have thrived during the pandemic, the retail and hospitality sectors have taken a beating. There were a record number of retailer bankruptcies and store closures in 2020, which left malls and malls in a precarious position. Meanwhile, travel has come to a halt in 2020, leading to a sharp drop in hotel bookings. Things picked up speed in 2021, but the hotel recovery won’t be complete until business travel resumes at full speed. At this point, however, we don’t know when that will happen.
3. Office buildings have become obsolete
At the start of the pandemic, many companies turned to remote working. Two years later, a large number of employers have still not sent workers back to the office. This has caused a world of stress for investors in office REITs. And while some companies insist that remote working is not the wave of the future, the longer remote arrangements remain in place, the harder it will be for office owners to get leases signed.
A clear mixed bag
It’s fair to say that we haven’t yet grasped the full extent of the pandemic’s impact on real estate – and we may not for many years. But either way, it will be interesting to see what 2022 holds for investors.
So far, mortgage rates are already higher to start 2022, and they could continue to climb. But that could, in turn, lead to lower buyer demand, which could then lead to more subdued home prices.
Rental demand is expected to remain strong for at least the first part of 2022 as house prices remain high. But that could change in the latter part of the year, especially if mortgage rates continue on an upward trajectory.
All in all, 2022 should be a good year for the industrial sector, with retail and hospitality expected to remain flat given our strong economy and consumers having money to spend. The really big wild card for 2022 is office buildings, so we’ll have to see which direction the coronavirus outbreak takes before we can make any predictions about a widespread return to in-person work.