What the future of the real estate sector will look like after COVID-19.
Since COVID-19 was first discovered in December 2019 in Wuhan, China, it has spread rapidly across the globe. Once the WHO declared it a pandemic, many countries went into lockdown to curb the spread of the virus. While lockdowns have been fairly effective in reducing the number of infections, they have also put tremendous pressure on the world’s economy. Millions of people lost their jobs, thousands of businesses have closed for good, and entire industries have been devastated. The resulting recession will possibly be the most severe the world has ever experienced. So, what does that mean for the future of real estate? Is there anything businesses can do to turn the tide?
The impact of the coronavirus crisis on real estate
The ongoing pandemic has thrown the world’s real estate markets, and economies as a whole, into a state of disarray. While there is, unfortunately, damage yet to be done, we are starting to get an idea of the toll that this has taken. Global property markets are expected to be among the hardest hit by the pandemic-induced recession (or even depression), with fewer people considering buying a new home until things begin to pick up. Consequently, house prices are expected to fall. In the UK, according to the Nationwide house price index, house prices fell by 1.7 per cent between the months of April and May 2020 – the largest such drop in more than a decade. Across the pond in the United States, house prices actually went up. However, with American unemployment well into double-digits, this could all change very soon. Just across the border, the Canada Mortgage and Housing Corporation (CMHC) does not expect the country’s housing market to recover before 2022. According to the CMHC, the number of new homes being built could fall by 75 per cent, with sales expected to fall by around 29 per cent. The prices themselves, likewise, will fall by up to 19 per cent.
What structural changes have already occurred?
Despite the gloomy story told by the figures above, homes are still being sold and landlords are still finding tenants – there’s just less of it happening. Of course, thanks to COVID-19 and social distancing measures, estate agents, landlords, developers, and prospective buyers and tenants have had to adapt. We have witnessed a significant shift of real estate-related services online as sellers and buyers alike attempt to avoid each other physically. Consequently, virtual tours and viewings are now widely available, along with video previews and 3D models of properties.
Whereas prior to the pandemic a person’s home was where they lived, it is now increasingly also where they work. This means that the role that a home plays in a person’s life, and the value that is attached to it, could be set to change dramatically. With many jobs expected to become permanently remote, there is potentially massive change on the horizon. Location will be less about proximity to a place of work and more about being a nice (and affordable) place to live. This means that rural properties have become relatively more appealing compared with urban ones. This also extends to suburbs – the idea being that the demand for urban housing is likely to drop in favour of suburban and rural alternatives.
In the retail sector, which is a massive user of real estate, trouble has not been avoided either. With many physical retail spaces being closed (voluntarily or otherwise), demand for physical retail space has dropped in favour of e-commerce. Restaurants that never delivered before have started doing so, and even office space is being rethought. Industrial and warehouse spaces are the only ones thought to be on the increase demand-wise.
The steady march towards increased digitisation is not a self-sustaining one. New tools, such as data analytics software, are in greater demand as real estate professionals seek to make sense of the wealth of data and information they find pouring into their laps. This goes in tandem with increased automation, such as the use of chatbots and AI to deal with consumer queries, whether on a company website, social media page, or via text.
Visions for real estate’s future
For Andrew Baum, professor of practice at the University of Oxford, proptech (property technology) is going to play a major role in the future. “Thousands of extremely clever people backed by billions of dollars of investment are working hard to change the way it [real estate] is traded, used and operated. 93 per cent of tech start-ups fail to last more than three years, but those who prosper will have a radical impact, and it is of vital importance for companies to understand exactly what changes they will bring. This initiative will enable both the academic and commercial real estate communities to work together in preparation for a period for unparalleled challenge and opportunity,” he observes.
Dennis Frenchman, professor of urban design and planning at MIT, sees the future of real estate also being affected by an increase in health-consciousness among buyers. Health-centred communities and similar concepts will be in greater demand, especially among younger generations. “They [millennials] prefer to live in more densely populated areas because they prioritise community and walkability, and they want green space and leisure options because they value a work-life balance that promotes healthy living,” asserts Frenchman.
The co-founder of property and proptech business platform Unissu, James Dearsley, sees an unprecedented shift towards digital for the real estate sector. In his view, there is no going back from this radical shift. “No other industry that has gone through a digital transformation has ever gone back,” says Dearsley. “Just like the music and automobile industries, real estate is changing forever.”
Futurist and keynote speaker Richard van Hooijdonk observes that retail is finally realising the gains to be made from going digital. In particular, smart technology is going to become increasingly available, affordable, and (consequently) ubiquitous. The way we live, in addition to where we live, is going to change as well. Everything from refrigerators to central heating may be controlled via a smartphone or similar device; bringing with it a whole host of advantages for sustainability, energy efficiency, and convenience.
Before the future comes knocking on our doors whether we like it or not, there is a recession to deal with right now. As mentioned above, many in the real estate sector have already adopted new practices and technologies to keep business flowing as smoothly as possible despite the recession, pandemic, and social distancing. Where previously estate agents and others may have relied on interpersonal skills, gut feeling, and presentation, there is now a greater emphasis on data. In the absence of in-person business, data will be coming in via the digital world real estate professionals have increasingly embraced. Making best use of this data, and sharing it with the appropriate people, will mean a lot.
As some parts of the world slowly start re-opening their economies, employees are heading back to work to find the office a different place. Businesses have learned that there is a role for automation, and smarter offices mean greater efficiency and sustainability. “We see these technologies throughout the real estate ecosystem. They include email and drip campaigns for marketing, automated appointment scheduling, technologies that target and communicate with prospects, and even automation in the commercial space with portfolio management. These small process changes can make a huge difference in business strategy, prioritization, efficiency, and service,” says Roy Dekel, CEO of real estate software company SetSchedule.
People in general are becoming more concerned about the environment and the effect of human activity thereon. With 40 per cent of global carbon emissions produced by the construction and operation of buildings, the real estate sector will be under pressure to change. Eco-friendly practices will earn companies invaluable goodwill from consumers. People are also using social media platforms for more activities, including social events, shopping, and more. Real estate professionals are learning that social media platforms are a very good way of reaching out to new customers and retaining old ones.
Cases and experiments
It has often been said that it is all about ‘location, location, location’. However, as we have seen, this might no longer be the case, with more people working remotely than ever before. Seeing this shift in priorities, North American real estate developer RXR Realty teamed up with Leap, McKinsey’s leadership programme, in order to form a lab consisting of engineers, data scientists, designers, and product managers to deliver new products and services. The future of real estate is no longer about delivering four walls to tenants,” says RXR CEO Scott Rechler. “Instead, it’s about creating a unique, personalised customer experience that fosters meaningful interactions, collaboration, productivity. Delivering this will require a unique combination of capabilities that seamlessly integrate across the physical and digital realms.”
In Texas, start-up Nada has launched a new platform that allows homeowners to sell their property online with as little as zero commission. The platform combines realty, mortgage, insurance, and escrow service in one package. Homeowners pay a fee of $4,000 to receive the full package of services, and only need to pay if they manage to successfully sell their home. If not, they are entitled to a full refund. Nada will take care of everything for the seller, from property photography to online listing sites.
The future of real estate
Much has changed for the real estate sector, and more change is on the way. Over the last few years, we have seen our homes becoming increasingly ‘smart’ as technology prices continually go down. High-tech home features, all integrated via a smartphone or similar smart device, will provide greater convenience, energy efficiency, and comfort.
Blockchain technology, most often associated with cryptocurrencies, is finding a home in the real estate sector as it offers the potential for faster and more secure transactions. This goes hand-in-hand with big data and data analytics technologies, which offer greater insights to real estate businesses than ever before. Thanks to our newfound needs for social distancing and convenience, 3D modelling and virtual reality (VR) tours can make the experience of viewing a prospective home easier than ever.
Ultimately, all of this has the potential to alleviate one of the more pressing concerns of our time. More and more people are concerned about the impact of human activity on the environment, and the efficiencies and insights that will be part and parcel of the future of real estate will help us address these problems.