We’re all aware that the COVID-19 pandemic has significantly impacted real estate investments—it’s a reality many of us face on a daily basis. As a result, many investors have been forced to change their real estate investing strategies to deal with the economic effects of the crisis.
And, investors are also facing new challenges as the country emerges from lockdown restrictions. One of the biggest challenges right now is soaring inflation rates. According to Trading Economics, the inflation rate hit 7.5% in January 2022—the highest inflation rate in 40 years. Adding to the issue is the fact that energy costs are skyrocketing—and there is a widespread labor shortage to contend with as well.
So how are these economic trends affecting real estate investing strategies? And after the country shakes off the shackles of COVID restrictions, what do these trends—and the subsequent strategy shakeups—mean for property investment, especially in the rental property market? Well, while it’s not entirely clear what will happen to the real estate market post-pandemic, the good news is that investing in real estate post-COVID will almost certainly be a good idea. Here’s why that is—and information on what types of real estate investments may be a good idea after the coronavirus pandemic is over.
The pandemic brought many uncertainties with it—and not just for investors. With shelter-at-home orders in force throughout the country, many people were confined to their homes, unable to go to the office, visit friends or family, make a quick trip to the grocery store, or take their planned vacations.
And, many people lost their jobs or saw significant decreases in income, which meant that rent was tough to pay for many tenants. To help avoid another economic crisis, eviction control measures were introduced on the federal level. These measures were meant to help renters avoid being evicted from their rental units.
In turn, open units were a scarcity. According to a 2021 report on the pandemic’s effect on the U.S. rental market, rental listings were 26% lower in the first half of 2020 than they were just one year prior. Home sales transactions in large metropolitan areas also fell by 50%—and average sale prices declined by 18%.
And, according to some analysts, there were certain real estate investment market sectors were hit harder than others. For example, investment in senior care facilities, hotels, and gas- and oil-related properties posed a greater risk to investors than residential properties, and the sales data is evidence of these issues. This was almost certainly due to the uncertainty plaguing certain industries, like travel, at the height of the pandemic, but it had a big impact on how investors chose properties.
Much of the pressure on these industries has decreased significantly in the time since, but questions remain as to what the real estate investment world will look like after the pandemic is over. It also begs the question of what the best types of real estate investments will be at that point. While it’s difficult to predict what exactly will happen, there are a few real estate trends that may be worth keeping an eye on in a post-pandemic world.
What types of real estate investments have the potential to excel in 2022? And what are the trends to look out for as the country recovers from the pandemic? Here’s what you should know.
Despite eviction moratoriums, multifamily properties performed relatively well during the pandemic. At the height of the pandemic, many tenants received rental aid assistance and direct aid to pay monthly rent—which kept these types of investments appealing to savvy investors—and rental units have remained in very high demand in the time since.
Also, many landlords worked out payment plans with tenants to ensure that they continued to receive rent, and this also kept the rental market tight with few evictions. Furthermore, the ban on evictions didn’t wipe the slate clean with rent debts, so landlords who did not receive rent during that time will still be able to collect the rent they are owed from tenants.
This is a good sign of what’s to come for multifamily units, as these investments weathered the tough times and are now incredibly lucrative for the right investor. And, it’s likely that these types of real estate investments will remain strong post-pandemic, too.
There were mixed fortunes for owners of office and retail properties during the pandemic. Many offices were deserted as people were forced to work from home. There was talk that investment in office space would never recover.
However, the complete shift to working from home never happened—and it appears unlikely that it will. As such, office and retail properties are likely to be a good investment in a post-pandemic world, as the demand will likely be higher than once expected.
Another good sign? Retail properties stabilized as stores were able to open and resume trading during the last quarter of 2021—and will likely continue that trend throughout 2022.
Related: A beginner’s guide to investing in office buildings.
During the pandemic, some of the best real estate investments in the commercial real estate sector were those connected with logistics and shipping. One of the main reasons for this was that e-commerce businesses were doing more business than ever thanks to an uptick in online shopping, and, in turn, needed a lot more storage and shipping space.
Many analysts say that the demand will remain high for commercial properties thanks to continued growth in e-commerce—which had been occurring well before the pandemic. The lack of in-store shopping options simply added more fuel to an already burning fire.
While industry experts agree that the pandemic affected real estate investment strategies, real estate and property investment remain a target for many investors. We’re already seeing positive trends in the first few months of 2022, including:
Right now, many real estate assets require repurposing and redevelopment due to the changing landscape. This is requiring investors to have robust strategies that allow them to understand the core aspects of their investment targets. In most cases, this means they are gaining access to data-driven analysis and in-depth marketplace insights—which helps to heavily inform their strategies.
For example, one thing that the pandemic made clear is that rental property owners need to make analyzing tenant risk profiles a top priority to avoid losses whenever possible. After all, there was a potential for a crisis in the rental market at the start of the pandemic—which could have caused huge problems for many investors.
However, a surprising number of renters kept on top of rent payments—likely due to landlords and investors doing their due diligence on potential tenants. Thorough screening remains one of the best ways to protect your investment assets—and given the uncertainty of the future, will likely remain a trend in real estate for some time.
The demand for office space is increasing as workers return to the office. However, commercial tenants now want flexible workspaces because hybrid models have become the norm. This requires repurposing existing office space to make it more accessible for hybrid work, which requires room for collaboration and meeting spaces. It may also require commercial property owners to redevelop office space with flexibility in mind.
Sustainability and ESG are becoming priorities when commercial tenants are looking for new space. In addition, corporate clients must provide their socially-conscious investors with guarantees about operating sustainable businesses, which means there’s even more demand for these types of spaces. And, with many cities having ambitious net-zero emission targets, the demand for energy efficiency, cool roofs, and reducing wastewater continues to increase as well.
The COVID-19 pandemic forced many investors, property owners, and tenants to rethink how they use technology. For example, many residential landlords switched to online rent payment and collection methods. They arranged virtual tours for potential tenants and started using e-signatures on electronic documents. In turn, landlords found that these new technologies helped to streamline their rental businesses.
Related: Ways technology is overhauling property management.
Technology will continue to be essential in meeting tenants’ demands for commercial properties. Take, for example, the fact that during the pandemic, it became evident that robust air-filtration systems were important to help prevent the spread of coronavirus. There is also increased demand for touchless technology in buildings—which includes everything from hand sanitizer dispensers to automatic lighting and motion sensors.
This shift in technology could lead to more workers using apps on their smartphones to control various systems in the office, whether the elevator, heating, or lighting controls. As such, investors who invest in smart building technology and ESG principles can typically command a premium for rent.
While there’s no question that the pandemic has had a major impact on real estate investing, many of the long-term effects it had on real estate investment strategies remains to be seen. Time will tell how the downtown office sector adjusts to a hybrid working model.
That said, there are already some prevailing trends to take note of. For example, residential landlords will continue to invest in new technologies to provide high-value tenants with a premium service—which may help to shape the way you invest, too. The trend of rising rental prices also means that landlords should recover losses incurred during the pandemic in time.
And, it’s almost certain that investment in real estate will continue to remain attractive for many investors. That trend is not going anywhere in the near future—even if strategies shift over the long term.