The majority of investment routes went through a decent amount of turbulence during the initial spread of COVID-19 pandemic. Real estate, and specifically retail real estate, are taking the biggest hit. At this point the investors are in need of rethinking the way their assets are allocated within the problematic sector.
It is true that retail was already facing a decline, but the pandemic restrictions took it to a whole new level. At the beginning of the year 20.8% of global investors’ assets were settled in the merchandise real estate. By the end of the first quarter, the sector’s returns came in second lowest after the tremendously struggling hospitality with the -2.06% return. The drop caused many investors to reconsider their portfolio distribution and many shifted away from the segment.
The only subcategory that is believed to remain thriving is grocery-related spaces. According to industry executives, the smartest solutions for large commercial spaces and malls is to re-purpose the department stores into distribution centers or residential units. The same thing is very likely to happen to offices.
Office real estate is the largest category, holding interest of 35.4% of global investors. The work from home seemingly leaped from being a necessary measure to an entire philosophy. A survey by Barings, an investment management company set in North Carolina, indicates that over 60% of employees confirmed that they will be reorganizing their living spaces to accommodate a home office.
This brings us to the next big concern of real estate investors: the residential properties. The multifamily buildings are still going to remain a strong asset, but their size will start to matter more. Mid-rise properties with lower density are taking a strong advantage over skyscrapers. The primary reason for this being an ability to take stairs instead of a crowded elevator.
Another pain point for large high-rise buildings is the reversal of pre-COVID’s urban migration trend. As the global population starts seeing previously unnoticed perks of distanced suburban homes, a lot of residential units and offices are expected to be left behind.
The common solution to the anti-urban trend is renovation of city apartments to fit the new normal by expanding the living space and adding health-oriented amenities, such as rooftop gardens. Landlords state that tenants do not seem to be interested in the studios anymore, as the focus adjusted to one and two-bedroom units. This can be easily explained by the amount of time people have started to spend at their homes, rather than in the public areas.
Overall, the investors across real estate sectors are advised to get used to lower returns. Offices, entertainment complexes as well as hotels and restaurants will keep on sliding downwards in the foreseeable future. The only few property categories that will continuously grow and benefit are cell towers, digital centers and rental homes.
