(Re) Thinking the Future of Real Estate
How COVID-19 Has Impacted the Real Estate Market
In collaboration with Akin Olawore & Co.
The worldwide pandemic caused by the coronavirus (COVID-19) has impacted the way we interact, work, eat, shop, and socialize. Within the real estate industry, COVID-19 has disrupted the already delicate balance; occasioning both threats and opportunities in the industry.
When COVID-19 began to spread in Nigeria, the Central Bank reacted by lowering its interest rates. Although this resulted in lower borrowing costs, particularly for mortgages, it also resulted in lower savings rates which adversely affected those saving up to make real estate purchases.
Lockdowns, social distancing and curfews as a result of COVID-19 have had a huge impact on physical locations. The hospitality and retail sectors were especially impacted by this.
Shops were devoid of customers. Offices remained empty. Developers were also not spared as construction work was delayed and they experienced hindered access to building materials.
How has COVID-19 Altered Consumer Mindset and Behaviours?
Within three months (January 22 - April 22), the number of COVID-19 cases worldwide increased from 580 cases to about 2.5 million, a whopping 4,320% increase. In order to curb the spread and flatten the curve, over 100 nations globally instituted a partial or full lockdown, restricting movement, gathering and what they deemed to be non-essential businesses. This meant that many people were out of work, many were not being paid, many were not spending – trade was at a standstill, and so were economies.
It is not a stretch to foretell that the GDP of almost all economies will shrink in 2020. Although many people are comparing what we are experiencing now to the Recession of 2016, where the unemployment rate in Nigeria grew from 9% to 13.4% and consumer spending drastically declined; what we are experiencing now and what is to come in the next 18 months is different and significantly more drastic.
As people grow increasingly worried about their physical health and safety, unemployment and economic contraction is also creating a sense of uncertainty and panic which has slashed spending, and is increasing instances of negative emotions such as fear and anxiety; all leading to drastic changes in consumer mindset and behaviour.
Some of these changes that we are currently seeing include:
Sanitation and Hygiene: many people are realizing the importance of precaution and the role personal hygiene plays in the prevention of infection.
Health and Wellness: also from the realization of the importance of precaution, people have started eating healthier, taking vitamins and exercising so as to reduce their risk of infection.
Prioritizing Family and Friends: many people are reminded of the fragility of life and now frequently check in with family members and friends. Those they love and are familiar with are a source of positivity and normalcy in their lives.
Prioritizing Essentials: with many people on unpaid leave, many with jobs lost, many facing job insecurity and many simply just facing the fear of the unknown, more and more people are prioritizing essential products and services.
In-Home Everything: people’s daily and work routines have changed as they embrace working virtually and home entertainment and digital services.
People are also learning to do things they would normally pay someone else to do such as cooking, cleaning, hair styling and other self-care services.
As many countries have achieved their goal of “flattening the curve” with infection rates decreasing, lockdowns and curfews are being lifted and economies are being rebooted. This however does not mean that the pandemic is over, and it is expected that a lot of consumer mindset and behaviours introduced during the peak of COVID-19 will be sustained as we enter this new phase where COVID-19 is being managed.
Impact of Altered Consumer Mindset and Behaviours on Real Estate
Residential
Student Housing: has been hit hard and will take a while before things get back to normal. A key challenge of student housing is the consumer behaviour of hygiene and sanitation. Out of fear for their health and safety, people are more likely to move to single units, rather than live with roommates over whose hygiene they have no control. As educational institutions are still closed to physical classes, we expect student housing to suffer a longer-term impact.
Homes: have been doing well and will do well for a while. As more and more people are working from home, we expect to see an increased need for privacy and comfort. People are more likely to move into units where they have their privacy to work, rather than live with roommates. We also see a lot of redesign in homes, where people are trying to carve out workspaces.
Senior Homes: have unfortunately been hit hard, and it will take a while before things get back to normal. In Europe and North America, the vast majority of fatalities from the coronavirus was among the elderly living in Senior Homes (also known as nursing homes or long-term care facilities). As people are now prioritizing their families and friends, we expect them to have the desire to keep them close. This coupled with continued social (physical) distancing regulations, we find that instances of communal living is reducing, leading to a decline in the need for Senior Homes.
Impact of Altered Consumer Mindset and Behaviours on Real Estate
Commercial
Retail: has been hit hard and will take a while before things get back to normal. For a minimum of three months, people were forced to shop online and adjust their shopping behaviours to suit e-commerce as well as m-commerce. We will see this trend and preference for e-commerce and m-commerce continue. Prioritizing essentials will also trend upwards; therefore if retail stores do not provide essential services, we expect a continued decline in sales.
Co-Working Spaces: has a huge opportunity. For those working from home, who are having PHCN, Internet and privacy challenges, co-working spaces close to homes are the fix. As people are able to socially distance at such places, and will not have to commute for long hours, they are able to reduce the risk of infection while also gaining access to an efficient working environment. The opportunity here is to also have co-working spaces in suburban areas and not necessarily just city centres.
Offices: are one of the biggest hit sectors. After three months of enforced remote work, a lot of organizations are finding that it is indeed possible for their staff to work from home. This realization has allowed tenants of office spaces to identify saving opportunities and has made landlords identify the opportunities in repurposing their spaces for essential services e.g. Medical Offices, Data Centres, Warehouses and so on. A prospect for many existing office spaces is to review their unique selling proposition and see what value the office provides apart from the routine workspace. For example, is the office space designed for collaboration or even creativity that cannot be achieved virtually?
Impact of Altered Consumer Mindset and Behaviours on Real Estate
Industries/Factories: this evaluation depends on whether the factories are producing essential services or not, and whether inputs are required from outside the factory. For those producing essential services, opportunities abound; however, for those whose products are deemed non-essential services or for those whose products require input from outside sources, it is a bit challenging. For those producing non-essential services, they now have a limited number of off-takers forcing them to produce less. For those whose inputs are from outside sources, supply chains have been severely affected and as such many factories are delaying or ceasing production altogether.
Within the real estate industry, COVID 19, has ushered in highs, lows, threats and opportunities. The ability to weather this storm is dependent on the versatility with which stakeholders in the real estate industry respond to immediate challenges.