Corona and its consequences for the real estate industry
The Corona crisis has kept the world on tenterhooks for more than half a year. The effects on the economy are enormous and will probably only become really visible in the next two years. The flood of capital from governments and central banks is still serving as a drug.
The #unemployment rate in this country rose significantly for the first time this year by almost 20% compared to the previous year. However, the effects and their noticeable consequences are not evenly distributed across all industries, as a study by the US consulting firm #McKinsey points out. For example, jobs with frequent human contact, especially in #tourism, #hotels and #restaurants, tend to be strongly affected, while workers in occupations without constant human contact, such as accountants, architects or even agricultural and mining occupations, hardly feel any impact.
All of these economic factors have the potential to impact the #real estate industry, sometimes with a time lag, which is why the question for investors and developers is which #real estate markets will ultimately be affected by the #pandemic and to what extent.
In fact, the picture is very heterogeneous when looking at the different markets or #asset classes of the real estate industry. The F+B housing index published in September showed a 1.7% increase in #purchase prices across Germany for Q2 2020, and even a 6.1% increase compared with the same quarter of the previous year. However, this #increase is in stark contrast to the figures of the Federal Statistical Office, which diagnosed a Germany-wide #income decline of 2.2% in Q2 2020. Accordingly, the purchase prices for #residential real estate are developing diametrically opposed to incomes. It remains to be mentioned that, particularly with regard to rents, #short-time allowance, Harz IV, as well as #housing allowance strongly cushion potentially negative effects. Demand for housing is still expected to remain high.
In contrast, one of the most controversial asset classes with regard to the impact of Corona remains the #officeproperty market. While in the short term this formerly booming asset class, particularly in the city centers of large cities, is causing numerous landlords #rent deferrals and in some cases even vacancies due to the ongoing #homeoffice model, the question remains with regard to the future what will happen to office workplaces in the long term. The international service and consulting company #JLL has developed three scenarios for the future of office real estate. In essence, two opposing trends are at odds with each other. On the one hand, the home office approach, potentially also adopted by companies in the long term, is dampening demand for office space and could reduce space requirements by up to 23% in the future. On the other hand, a "back-to-normal-business" approach cannot be ruled out, which could be accompanied by stricter hygiene regulations and social distancing opportunities. In this case, following JLL's study, space requirements could even increase by up to 14% to ensure more space for individuals.
The asset class most affected by the Covid-19 pandemic is undoubtedly the #hotel. The Real Estate Newspaper is already reporting a significant drop in #transaction volume of up to 20% compared to last year. The consulting firm #Colliers assumes a long-term recovery of the industry, which, however, will take several years. Over the past three to four years, these asset classes have enjoyed a huge influx of capital, particularly from large pension funds, which has now come to an abrupt halt. However, should #travel restrictions be eased or even lifted in the future, after the current pandemic has been successfully managed, these asset classes would particularly benefit from the long-term upward trend of the #tourism industry. Colliers, however, expects demand and #allocation towards residential real estate on the part of #investors to be strongly subdued by 2023.
In a survey conducted by the real estate online platform #Immocation, 373 private investors who are primarily active in the German real estate market were asked about their experiences and assessments with regard to Corona. With regard to the geographical allocation of #investments, two thirds of the participants stated that they would continue to invest primarily in B and C locations, i.e. in major cities but outside the large German metropolises such as Berlin, Hamburg or Munich. Only 12% are currently struggling with rent losses, with rents generally remaining at a stable level. Around half of the investors had been active in the real estate market in the past 6 months, i.e. after the start of the crisis. Around 60% of those surveyed had been provided with fresh #debt capital by #banks in the past 6 months.
Overall, a mixed picture emerges with regard to the foreseeable consequences of the #Corona #crisis to date. The #uncertainty in some asset classes remains high. However, there are also significant differences in terms of asset classes and geographic locations, and in some cases prices continue to rise significantly. In general, however, investor interest in investing capital in the real estate sector remains high.