What’s next: The future of real estate
Pandemic has decreased demand for office and retail space but boosted certain industrial sectors
How will the forced move to working from home due to the coronavirus crisis fundamentally alter the real estate industry? A great reshuffling is happening as new business models are developed and those in the housing market shift their gaze from downtown and megacities to suburbs and midsized cities.
Edward Coulson is a professor of economics in UCI’s Paul Merage School of Business and directs its Center for Real Estate. He’s an expert on the impact of home ownership on people’s lives and neighborhoods; home prices; multifamily housing and its management; and the relationship between real estate investment trusts and other asset markets. Here, he discusses the pandemic’s effect on the industry, from agents and brokers to buyers and property managers.
How has residential real estate been impacted by COVID-19, and why?
There has been some upheaval in the residential market but maybe not as much as had been forecast. People still need a place to live, and the quality of space seems to be even more of a priority, so affordable housing is as important as ever. Single-family home prices are relatively stable or even rising, depending on location. This may be due to very low interest rates or the abatement of last decade’s demand for downtown housing due to fears of high-density environments in favor of single-family residences. The concern is how widespread unemployment, reduced hours and lower wages will affect households’ ability to make mortgage or rent payments. It remains to be seen whether or not this becomes a serious problem in the mortgage credit or rental markets.
It seems COVID-19 concerns have most significantly upended real estate’s retail and industrial sectors. How has this happened, and what is the future for these areas?
Industrial includes logistics and distribution centers, and those sectors are thriving in the current environment. Increased demand for online shopping is driving this trend and the need for even more space for these purposes. Amazon recently unveiled a new plan to repurpose retail department store space into distribution centers, which, ironically, may help a mall’s other tenants. In another ironic twist, personal services like hair salons and experience goods like cinemas were projected to withstand the online onslaught, but their activities are those most curtailed by the pandemic.
What is the future of the real estate office?
The role of the office has been redefined as we adjust to the impact of COVID-19, since we’ve realized that not all tasks have to actually be done in the office after all. The real estate industry recognized that long ago. Not all agents had their own office space – their real work is done out in the field. However, even in the era of remote meetings, offices still have their place. When we’re able to, we’ll still want to get together in person, but real estate offices as well as other industries will have additional space devoted to remote capabilities, with more sophisticated communications equipment and IT systems. Other changes will include improved HVAC and energy efficiency in light of increased concern about indoor work environments.
How has the coronavirus changed the way agents and brokers do business, and are those changes permanent?
Agents, brokers and property managers are interacting with their clients in new ways. The coronavirus has accelerated trends that were already happening, such as video tours that allow clients to remotely view properties. Keyless entry lets potential buyers tour houses without interacting with others, and managers use software to monitor and oversee properties and maintenance with minimal fuss.
During the pandemic, have there been differences in the way buyers go about finding properties, evaluating them and making purchase decisions?
Sure. The industry has developed new ways of marketing properties, and this will allow potential buyers to see many more prospective properties than before. This is progress and would have happened without COVID-19. It benefits sellers as well, because a greater number of viewers means more competition for each property. But the on-site tour will never go away. I would never buy a house without actually visiting it!