The U.S real estate industry shrunk, nearly half, in the first half of the year as the COVID-19 pandemic rattled sentiments about investments. The total value of deals shrunk significantly as the number of transactions also more than halved as people scampered for safety, given the uncertainty fuelled by the pandemic. This marked the weakest performance in the U.S real estate sector over the past five years.
Real Estate Downturn
The hospitality sector remains the most hit with real estate activity in the segment shrinking by more than 77% compared to the second half of 2019. Retail real estate deals also contracted, shrinking 53% as retail outlets were forced to shut down in the wake of the COVID-19 pandemic.
A shift of shopping patterns to online has only gone to accelerate a decline in retail real estate deals. The total deal value for apartment complexes and offices also shrunk significantly in the first half of the year. The contraction in the real estate sector is a point of concern for policymakers, given that contractions in the sector were the catalysts behind the 2009 financial crisis.
A slowdown in real estate deals could be attributed to, among other things, tighter credit terms by lenders. While the Federal Reserve Benchmark has shrunk to record lows, lenders are still reluctant to issue credit given the uncertainty fuelled by the COVID-19 pandemic. In addition, people are refraining from pursuing real estate investments, opting to hold on to cash to navigate the epidemic.
Amidst the slowdown, PricewaterhouseCoopers predicts an uptick in real estate deals in the second half of the year as the world slowly bounces back from the COVID-19 shocks. Investors are likely to flock the market in pursuit of badly beaten properties when it comes to valuation. Real estate dealers and developers have had to cut asking price all in the effort of fuelling demand.
Real Estate Opportunities
The opportunity to buy property at highly discounted levels is one that most investors cannot shrug off even as COVID-19 continues to cause havoc. Similarly, the easing of uncertainty over future trends should also continue to fuel activity in the real estate sector.
Wealthy investors have already used the opportunity to purchase some high-end properties. Samuel Eshaghoff has already acquired a 5,000 square foot building in Ditmars Steinway Street for $2.31 million. The Morgan Group, on its part, has acquired a six-story building in the Norwood neighborhood for 7.7 million.
New trends are likely to crop up in the way people invest in real estate in contrast to the past. For instance, demand for the so-called 18-hour cities is on the rise as people’s lifestyles change with the COVID-19 at hand.
People are also looking for urban core amenities offering all the amenities such as restaurants and shopping centers at the same point. The proliferation of digital healthcare solutions and eCommerce should also continue to influence how people invest in real estate properties. With most operations going online, there is likely to be a drastic change for medical offices, healthcare facilities, and retail space.
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