Print
version
version
The research, undertaken jointly by PwC and the Urban Land Institute, is one of the most highly regarded and widely read forecast reports in the real estate industry. It provides an outlook on real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues.
Since the pandemic entered our lives in March 2020, the property sector has experienced a number of unprecedented challenges and rapid shifts.
Most economies and property markets have demonstrated surprising resilience and capacity to adapt to changing market conditions and future unknown risks.
Nearly every property sector has experienced some significant changes. And the retail segment had to deal with most of them due to shifting consumer demand and the growing popularity of home delivery and curbside pickup services.
The occupancy rates and rents inevitably fell in all segments. Only industrial spaces experienced rising demand because of the surge in online shopping.
It is worth mentioning that the declines in most sectors were much less than typical for even modest recessions.
The main reason for that is that tenants generally hoped that the situation would not last very long, and companies did not want to give up valuable spaces, especially offices.
Eventually, some tenants gave up their spaces, but most of them continued to pay their rent and some even renewed their leases.
The volume of sales transactions also fell, but not nearly as much as during previous recessions. As for the prices, they mostly remained stable.
Most of the borrowers continued to pay their mortgages and enjoyed the mortgage forbearance programs. Tenants used the rent reduction programs.
On the other hand, this situation turned out to be a problem for the owners of retail spaces and apartment property owners, as well as mortgage lenders.
Moreover, many consumers ended up saving their stimulus receipts and are now looking for ways to invest the money.
At the same time, the economy faces a large number of risks and uncertainty. The main danger comes from the fears of the consumers.
For example, last year, after the new COVID wave, people started to cancel their travel plans. Employers also delayed the return of their staff to offices. Shoppers tended to stock up on pandemic-related items. And only delivery services were on the rise.
Most office workers are still working remotely most of the time. The survey shows that most people are still unwilling to undertake their normal activities.
Some economic sectors have recovered better than others. There are changes in labor markets as well. Many workers are dropping out of the labor force, and others have to change industries.
Most economies are experiencing serious inflation. On the other hand, it could be beneficial for some property owners.
Many stores and small businesses have closed permanently, though fewer than initially feared. Direct assistance to businesses, especially small businesses, has helped to avoid the worst impacts of the recession. At the same time, some of the nation's leading malls and luxury retailers report record sales.
The situation on the rental market is the same. Many small residential landlords were forced into bankruptcy when their tenants stopped paying rent, while institutional residential landlords keep getting high revenues.
Despite overall resilience, some sectors and markets have experienced existential changes, and many assets now need to be repurposed.
Working from home and working from anywhere is a current trend. But remote working often means converting your home space into an office. This imposes expenses on the workers and employers. The companies needed to upgrade their facilities in order to accommodate remote working and raise health and safety standards while anticipating future reopening.
Remote working is becoming a permanent option for millions of office workers. There are many perspectives on how this fact will affect the demand for office spaces. The experts say that under almost any possible scenario, companies are likely to be leasing less space in the future.
Offices in pricy central business districts are likely to experience a greater loss in demand than office spaces in the suburbs.
The retail sector has experienced the most changes because of the shifts in consumer’s shopping habits. Growing consumer comfort with shopping online with computer-based e-commerce, then with phone-based mobile shopping, provided the foundation for the dramatic increase in the scale and scope of online shopping during the pandemic.
Major retail chains upgraded their online divisions, while smaller retailers established delivery services or involved third-party platforms for transactions and delivery. Even “in-store” sales looked different as retailers and eateries moved their operations outside.
Retailers will need to continue to adapt to meet consumers where they want to be. Shopping centers need to keep changing as well.
As people are going to continue picking up groceries and other items they purchase online, retail centers need to provide more space for pickup.
Residential adaptations are going much further in their transformations, because homes have become schoolhouses, gyms, and entertainment centers.
There is also an ongoing trend of migration from dense central business districts to suburban areas.
As a result, home prices are rising faster in distant areas than in the big city’s neighborhoods.
With lower home costs in distant locations, buyers can afford larger homes. Many households already in the suburbs are building extensions onto their homes.
The experts also expect that home renovation and repair expenditures will grow 8.6% by the second quarter of 2022 from a year earlier. The majority of this money will most likely be spent on home improvements.
Medical real estate also experienced some significant changes. Paradoxically, the use of medical facilities actually declined during the pandemic because hospitals canceled elective procedures.
However, as the lockdowns eased, people started to seek medical appointments again.
The healthcare sector is likely to see an increase in the rental of more localized alternatives to hospitals and large medical complexes. As more people work from home, more patients will want at least some of their medical appointments to be closer to home than the office.
As a result, providers understand that the occupancy costs in these small neighborhood clinics will be more affordable than in downtown medical facilities, which creates additional incentives to use these additional offices.
Housing affordability worsened during the pandemic as the rise in home prices and rents barely paused during a brief recession and then accelerated rapidly as the economy reopened. Prices and rents continue to grow at the fastest pace on record, far outpacing relatively modest wage growth.
Costs of both for-sale and rental housing are rising much faster in secondary and tertiary markets as people fleeing pricey gateway markets bid up residential prices in the smaller destination markets.
With housing production falling far short of new household formations, affordability will continue to deteriorate.
Many city dwellers have moved to less expensive neighborhoods during the pandemic.
In the opinion of some industry observers, it might be painful for urban commercial property owners, but actually, this is good news for the cities themselves.
Some of the priciest rental markets are now a bit more affordable, making them more attainable to people with a greater range of incomes. Even high-earning professionals were getting priced out of the top markets, to say nothing of workers in lower-paying occupations.
The pandemic recession and recovery so far show the accelerating shift in where tenants want space. Rents have declined in the gateway markets while increasing slightly in both the non-gateway urban markets and suburban markets (end of 2019 to mid-2021). Almost everyone interviewed for this report expects the gateway markets to recover eventually.
Millions of potential homebuyers are priced out of the market because home prices are higher than they can afford in a large and growing number of markets, and prices continue to rise faster than wages. Even if they could afford the monthly payments, many other households, particularly younger ones seeking to purchase their first house, lack sufficient savings to make the down payment needed to take out a mortgage.
With so many prospective homebuyers priced out of the forsale market and thus continuing to rent, rents have soared to record levels and continue to increase faster than incomes. Thus, millions of moderate- and lower-income families are severely housing cost burdened, spending more than half of their income on housing.
Costs of both for-sale and rental housing are rising much faster in secondary and tertiary markets, in part in response to the outmigration of people from pricier gateway markets in search of more affordable housing, which is driving up residential prices in the smaller destination markets.
The Emerging Trends interviewees named the following ways to deal with the existing problems:
Trends in different countries:
Main Trends of the Swiss Real Estate Market in 2020
Phuket Real Estate Trends 2020-2021. What to Buy?
The Forecast for the Commercial Real Estate Market in Bulgaria
What Kind of Real Estate Will Have the Call After the Pandemic? The Results of a Global Survey
Seven Main Trends in the French Real Estate Market in 2020-2021
