The coronavirus continues to cause widespread disruption across the globe, and very few industries have escaped the pandemic unscathed. Real estate, which generally refers to land and any structures or natural resources attached to it, is one sector that is adapting to the challenges posed by the spread of the disease. Two of the main segments of the real estate industry are commercial and residential. Used for business purposes only, commercial real estate includes office buildings, shopping malls, and hotels. Residential real estate refers to properties that are exclusively designed for human occupation.
Commercial property sector faces severe challenges
In the first half of 2020, traditional brick-and-mortar retail units saw a sharp decline in footfall due to strict coronavirus lockdowns, and many retailers were forced to temporarily close their premises. With stores and malls not generating as much money, the ability of borrowers to make mortgage repayments has been greatly affected.
Commercial mortgage delinquency rates soared between May and June 2020. Changes in consumer trends, such as the switch to online shopping, are likely to have a more long-lasting impact. Permanent store closures are expected to increase, and
retail vacancy rates jumped to 20 percent in the second quarter of 2020. One advantage that the commercial real estate sector has is that it can be remarkably flexible: retail outlets can quickly become storage units; old factories can be turned into hotels. If people continue to work from home, there may also be less demand for office space in U.S. towns and cities.
Residential property market has remained resolute
Due to the financial implications of COVID-19, many workers have had their wages cut or lost their jobs. The
unemployment rate in the United States hit around 15 percent in April 2020. For these reasons, it is understandable that people may be cautious about buying a home. However, the U.S. Census Bureau has reported an
increase in the homeownership rate. The dream of purchasing a residential property is now more realistic due to a drop in
mortgage interest rates – a poll in March 2020 found that this was the factor that most impacted the
decision of homebuyers. Competition in the housing market is driving up prices, but there appears to be a willingness to pay more because the
median household income continues to rise. Tenants living in rented accommodation have expressed concerns that a loss of income could result in them being unable to pay rent. The federal government has, therefore, stepped in to temporarily halt residential evictions. The order prevents the residential property owner from removing any covered person from where they live through the end of 2020.
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