The Challenges—and Surprising Innovations—Arising From COVID-19
Originally published on July 13, 2020
Updated on December 7th, 2021
As the real estate industry grapples with COVID-19, we’ve seen a lot of changes over the last three months. Inventory is low in the residential housing market, over 25,000 retail businesses have closed, millions of Americans are unemployed, and developments have slowed significantly.
But it’s not all cause for alarm. With unprecedented challenge comes the need (and inspiration) for innovation. We’re seeing these innovations everywhere, including in real estate.
Nick Banks, Principal and Managing Director of Avison Young, talked with John VanDuzer, CPA and partner with James Moore & Company, to discuss how the real estate industry has and will change. He believes that even though the industry is reeling now, some good will come out of this situation.
The Biggest Challenges We Face
There’s no getting around the fact that there’s been a significant slowdown in developments and residential home buying. Plenty of would-be homeowners are still looking to buy homes in hot markets. However, many have had to rethink that dream after being laid off or furloughed during the pandemic. Developments and deals are primarily needs based; speculative or aspirational projects are on the backburner as developers reevaluate where they can best invest.
One of the biggest challenges for many commercial real estate investors, however, is the lack of support from the federal government. While many small business owners and major corporations have been bailed out during the pandemic, commercial real estate owners are dealing with a lack of income from rents and ability to pay their mortgages. The delinquency rate on CMBS loans soared to over 10% in June 2020 and is expected to get worse. Banks, lenders and owners are lobbying the government for as much as $300 billion in relief specifically for commercial real estate.
Hotels and retail shutdowns have also rocked the market. With over 25,000 stores closing in the first half of 2020 and a $38 billion loss in the hotel industry, the nation is struggling to figure out what to do with this staggering loss of business, profit and jobs. Foreclosures are expected to rise, particularly now that the current stimulus package has long been spent.
With Challenge Comes Innovation
Challenges bring opportunity. “Anytime we have disruption like this, I think it always brings out innovation and it brings out change,” said Banks. Avison Young is taking the opportunity to invest more in innovation, specifically data-driven advising.
“n the last few months, we’ve ramped up our innovation platform and the offering that we’re able to give to our clients in terms of data and analytics… a real deep dive into demographics and things like that,” Banks explained. “We brought on a consulting team that is able to provide occupiers with a dashboard that helps them determine where they should best locate.” We can certainly expect to see more firms do their due diligence with data and technology now, as opposed to what he calls “archaic” current practices.
We’re also seeing innovation in how people present real estate opportunities to buyers. Virtual showings have become more popular in recent months, thanks to social distancing requirements. Depending on the state, virtual showings may be the only option available. While the practice isn’t new, it has helped some professionals keep their business going during the pandemic.
Finally, the pivot from shopping in brick-and-mortar stores to an emphasis on delivery and drive-up services has kept many stores and facilities afloat. We can expect to see that demand for curbside or drive-up space, as well as delivery distribution centers, continue.
Commercial building owners are seeking more creative uses for retail space now that we’re shopping less often in traditional stores. Gyms, medical facilities and distribution centers are moving into these locations. This capitalizes on these industries’ need for space while being a critical lifeline for landlords.
While these won’t be the only innovations resulting from the pandemic, they’re a ray of hope for anyone currently struggling. Banks is quick to point out that “we have always come back stronger and moved forward” as a nation and an industry.
That said, it’ll also be necessary to adapt to the changed economy and way of life. Your real estate CPAs can help you make the necessary adjustments—and help you thrive in whatever the “new normal” becomes.
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