Real Estate Asset Management Post COVID.

The advent of crises follows a new sense of normalcy that individuals, government, and businesses need to adapt to. It is no different from the COVID-19 crisis. Today we live in a world where the global economy and markets are under tremendous pressure. The shutting downs of key sectors and social distancing measures have accentuated already inflated market prices, rising debts, and shifting demographics.

These are all factors that describe the investment environment. The challenge in real estate management is no longer how well managers survive amidst this new crisis. Instead, what matters the most is how well managers adapt to the “new normal” post-Covid19 future.

Real estate asset management during the Covid-19 crisis

What has changed, in short?

  • Before Covid19, investors had been used to healthy equity markets with cheap debts. Likewise, buybacks and low-interest rates. Today, realty managers need to face more volatile markets combined with high client expectations. Real Estate Asset Management. 
  • The need for more resilient managers is inevitable. In this new world, asset managers will need to be able to identify new investment perspectives that support client goals. Given the rise of environmental concerns around sustainable development, they will need new analytic tools for assessing risk. Success will be determined by how well firms in this sector align creativity and the need for strong business infrastructure.
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Changes in Hiring Demand in the Current Pandemic Crisis

The impact of the pandemic on demand for property is varied based on the type of property:

  • Residential properties, due to their essential nature, are always high in demand. With an already insufficient supply before the pandemic, things are even worse now. At the start of the pandemic, the market was very volatile. Due to uncertainties, sellers began taking properties off the market, thus decreasing supply even more. Added to this, a lot of people have lost their jobs causing rental payments to drop. To prevent f further decrease in supply, several states have taken supportive measures such as mortgage suspension and lower interest rates on loans.
  • Hospitality and retail properties have so far been among the hardest hit sectors by the global pandemic. With the travel restrictions imposed globally, real estate management services for these categories of properties have reached an all-time low. It is estimated that this sector will take close two years to recover as the hardest hit are high-end hotels.

At the beginning of the market, the market for office properties was disrupted by the work from the home trend. To abide by social distancing measures, companies have willingly adapted to remote work. Does this signify the end of office property? No. Companies today are more willing to move to more suburban areas and turn to asset

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Changes in Leasing Demand

The demand for leasing since March has kept property managers, on their toes. The COVID-19 pandemic has created, a certain level of uncertainty in consumer patterns. At the start of the crisis, there was a significant drop in new lease contracts. Due to the imposed lockdowns and, the fear of the coronavirus; Individuals hurdled up in their homes. This caused retention rates to skyrocket.

Conversely, lease renewals rates began dropping as unemployment rates soared due to the shutdown of most economies. Successful post-Covid-19 real estate management firms are rapidly adapting, to this new reality. With much more difficulties regarding filling up vacancies, property managers found new ways to meet their clients halfway.  The growing financial distress faced by renters pushed property managers, to encourage lease renewals. Renters and, managers opted to maintain flat rent rates. While the effects of Covid-19 have been felt at different rates based on geographical locations, the conclusion stays the same. For instance, lease demand has drastically dropped in Q2 of 2020 as compared to 2019. Key area – Real Estate Asset Management.

Repositioning of Assets Post COVID-19

  • Managers who have faced a crisis before understanding the importance of patience when searching for new investment perspectives. Repricing risks usually follow situations of high market stress. This creates opportunities for those who have the capital to invest and can identify undervalued and mispriced assets.
  • In this light, asset repositioning after Covid-19 will be all about timing.  Building a strong portfolio will require repositioning assets based on the fluctuation in demand for the different aforementioned property types. Residential properties represent a steady source of cash involvement with an ever-present demand.
  • As often the case in a post-crisis environment, these properties will be subject to miscalculated lease-up risks. This will allow for the quick acquisition of recently constructed properties withheld by developers in need of liquidity. They should, therefore, form the foundation upon which investors can build a strong portfolio.
  • Buying residential properties will offer flexibility in sourcing other types of property that have a more volatile market. The acquisition of hospitality property should be centred around properties with cheap discount rates requiring little or no capital upgrades. Choosing properties in markets where occupancy rates are not directly influenced by seasonal or leisure-oriented demand will be ideal. After taking all this into consideration, we can confidently assert that the right timing to invest as supply and demand will only improve by 2021.
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Diversified portfolios should equally look at the acquisition of offices in the suburban market.

This allows for adequate responses from the shocks from the urban market since the beginning of the pandemic. This is true as more people are settling in suburban areas, and more companies are willing to relocate their staff. Investment in strong markets revolved around growth, diversification, and shock absorption, creating room for more transactional flow. That said, a vital tool for real estate management in the post-Covid-19 era is adequate market selection.

Conclusion

At the end of the day, the COVID-19 crisis will eventually whither down, leaving the world to adapt to new realities. The new challenge for real estate managers is to build resilience in the face of growing complex needs. The development of new research and analytic skills are vital elements that address this new type of demand arising in this new future. To deliver value-added returns to their clients, real estate management firms will have to up their game. They will have to create sustainable business models tailored to their clients’ needs and requirements. Everything is changing, and the need to adapt is of the services. There will be a new normal after the pandemic, and every firm will have to go with the flow. Real Estate Asset Management.