Real estate investment has been one of the most attractive ways of putting money to work for a very long time. There is a reason why it always features prominently in the portfolios of billionaires and other sophisticated investors. It offers relative stability and attractive returns.
That said, 2020 is not like any other year in recent history. The global health crisis has upended traditional investment and business sectors, and the real estate sector is not an exception. So how exactly will the sector be affected, and how will you need to adjust your investment strategy to maximize your returns? Here are a few things you should consider:
Demand for office space
As a result of the virus outbreak, many businesses have shifted all or a large portion of their business online, utilizing software like Zoom, Skype and Microsoft Teams to hold virtual meetings and conferences, and using email or slack to communicate and collaborate on documents. Many businesses have expressed the sentiment that even after the outbreak passes, they will continue the arrangement – if not for the entirety of the business, then for a large chunk.
This is likely to have an impact on the demand for office space. As more business make the shift to remote work, the focus will be on securing conducive (in terms of neighbourhood facilities and apartment safety, among other considerations) residential property, rather than office space. The crucial flipside of this is that office space in prime locations is likely to appreciate in value. As some businesses reduce the number of their workforce who work in the office, they might prefer to have the select few (who are usually high echelon staff) move to more central and prestigious locations, so prices are likely to rise as a result of the increased demand.
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There are restrictions on movement in many cities in a wide range of countries around the world, but the real estate business has not come to a halt as a result. Slowed down, yes, but not stopped. Buyers and sellers are leveraging technology to conduct inspections and conclude transactions on property, but the considerations on either side of the table differ significantly.
As a seller, your focus should be on giving potential buyers the most immersive experience you possibly can. Photos and videos have been in use for a long time, but now you can use live video and even AR programs to allow potential buyers experience the property as closely as possible without actually being there. The more immersive the experience is, the more likely the buyers are to be convinced enough to close.
As a buyer, it is important to keep in mind that there are many modifications that can be made to photos and videos to make a property look much better than it is. According to John Darnell, real estate agent at Wasinger and Co, even something as simple as the lighting with which the photo was taken can have a massive impact on how it looks. It is better to look for sellers who use advanced digital inspection systems like live video or AR to allow you get as natural an experience as possible, and make an informed decision based on that.
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Changing property valuation
Based on the rapid changes in the preferences of buyers and investors on different types of properties and the locations, there is going to be a shake-up of real estate valuation. That’s something to keep in mind if you currently hold some property or if you intend to make purchases soon.
As outlined earlier, sprawling office spaces are likely to become less attractive due to the short-term and potentially long-term shift to working remotely. That will affect the valuation of such properties and if you have them in your portfolio now, it might be a good idea to dispose them as soon as possible before the depreciation sets in fully. The flipside is if the property is in a prime location, in which case the price might go up in the short and long-term as companies move their core teams to better locations.
As a buyer, it may be a good idea to hold off on closing a deal for an office location since the price could fall soon. That is, unless, as explained above, the property is in a prime location. In that case, buying it as quickly as possible would be the prudent thing to do.
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