The global COVID-19 pandemic has had indelible effects on nearly every aspect of modern life. The two years since the pandemic began have altered economic conditions and caused significant changes in the country's commercial and residential real estate markets.
Caspar Chou, a real estate investing expert from Alhambra, California, details how the COVID-19 pandemic has affected real estate investing, naming some of the significant shifts that have taken place in the industry.
Early Blow to the Industry
In the early months of the pandemic, lockdowns and stay-at-home orders prevented investors from making real estate sales and purchases. The market plummeted, and supply and demand both dropped significantly. In summer 2020, the market began to rebound as people ventured out again and began to snap up deals.
Significant Rise in Home Prices
One of the most unexpected effects of the COVID-19 pandemic was the rise in home prices in the summer of 2020. As described above, the market slumped in early 2020 as the effects of the pandemic became clear. The pandemic eventually caused a seller’s market, low supply, and high demand. Prices rose by as much as 13 percent between 2020 and 2021.
Certain Industries Hit Hard
Retail and hospitality have been hit hard by the pandemic and have not yet recovered in many cases. This has caused some sectors of the real estate market to become depressed. Due to the pandemic, some smaller family-owned businesses have had to close their doors permanently. Investors who held significant retail and hospitality space were left holding the bag unless they made intelligent moves early in the pandemic.
Lower Interest Rates
Where COVID-19 is concerned, Caspar Chou notes that not all of its effects on the real estate industry have been negative. In 2020, the Fed lowered interest rates to record lows. Rates have rebounded slightly in 2022, but they remain attractive to investors. Cheaper borrowing has given everyday home buyers and professional investors alike the opportunity to buy properties that may otherwise have been out of their reach.
Changes in the Office Landscape
The COVID-19 pandemic taught office-based businesses that their prized real estate was worth much less than they thought. In many cases, office-based companies were forced to let their employees work from home. Many industries, particularly in technology-related fields, still had work-from-home policies in early 2022. Office vacancies went up, and prices came down accordingly.
Investors had the opportunity to snap up office properties, but they were unwilling to do so in many cases, saving their money for more lucrative warehouses and industrial space.
Higher Rental Demand
Many people could not make their mortgage payments out of the pandemic. Many more were forced out of the home buying market due to escalating prices. These families have turned to rental properties and have, in turn, driven up rental prices and lowered vacancies across the country.
During the pandemic, average rental rates went up by a staggering 11.3 percent. Compare this to the average rate of rental increases from 2017 to 2019 at just 3.3 percent.
While many cities experienced a glut of vacant rentals in the early months of the pandemic due to people seeking more space and relative safety from the virus in rural and suburban areas, these vacancies are being filled again as people return to the cities. This has caused rental prices to spike in areas where they had dipped during the stay-at-home orders.
Industrial Space Growth
Due to the meteoric rise in online shopping caused by the pandemic, many companies expanded their use of warehouses and industrial space. This has caused prices and values to rise, leading to more money in investors’ pockets. While office and retail prices are down, warehouses and industrial space carry the real estate industry.
Real Estate Investing and COVID-19’s Effects
These points have illustrated how the real estate market has changed since the beginning of the pandemic in early 2020 and how investors have experienced the market’s ups and downs. Many investors benefited greatly from COVID, even though the overall economy has suffered due to job losses and inflation on household goods.
Caspar Chou underscores the importance of keeping up with the market and economic conditions to succeed as a real estate investor. When investors pay careful attention to the forces driving the economy, even profoundly felt economic blows like the COVID-19 pandemic could increase profits.
Understanding how to ride the waves of the economy without being caught in its pitfalls is the mark of a successful real estate investor. When economic conditions suffer, it requires strength and perseverance to stay in the market and plan for its eventual rise. Caspar Chou and other real estate investment professionals have shown that even an economic disaster like the COVID-19 pandemic cannot hold successful investors back.
