COVID-19 and the real sector

That the Coronavirus Disease impacted on every sphere of the global economy is no news. NKASIOBI OLUIKPE, in this analysis, reveals that while few benefited, majority was devastated by the impact

For sectors such as the Information and Communication Technology, it was an unprecedented boom. Thanks to the physical distancing rule, which birthed the stay-at-home order, as well as the emergence of the now popular virtual meetings.

One sector that took a big hit from the pandemic is the real estate. Though this, to a large extent, also depends on the property class. Generally, it wasn’t a palatable situation for them. In fact, in Nigeria, analysts are of the view that the sector never really recovered from the 2016/17 recession before being hit by the pandemic.

This forced many investors to pause to re-assess their approaches and strategies, as many are not willing to invest a dime in the sector until they are convinced that the threat of the pandemic is over. In Nigeria, there is lull in project implementation; reduction in sales, values and rates of return on investment in housing activities.

The disruption in the sector was, however, an opportunity for some prolific buy-and-hold investors, who cash in on price decline to buy up properties, hoping that with the advent of the vaccines, there would be chances of the pandemic subsiding, and the situation returning to normal.


Residences as going concerns

While dissecting the various property classes and the impact of the pandemic on them, reports have it that some classes like residential are recovering fast. For potential investors, this may well be an opportunity to cash in. But the same cannot be said of the commercial section, which analysts believe may take a long time to rebound.

This is understandable, as people were forced to evacuate their offices to adopt the work-at-home rule, in compliance with the physical distancing order. In fact, a report by Wealth Migrate, a global real estate marketplace that allows international investors to safely invest, has it that remote working is very nearly the death of the office spaces.


Pathetic office spaces

Wealth Migrate indicated that office buildings, as an asset class, have been the worst hit.

“Pay close attention as some companies may make remote working a permanent feature for at least some of their workers,” it stated.

Still on office buildings, another report by Schroders, a world class asset management company, disclosed that in the United States, it is estimated that the percentage of people working mainly from home jumped to between 40 and 50 from five in 2019. This shift, according to Schroders, has been repeated across the world, as governments asked people to stay indoors.


Requiem for hospitality?

If anyone thinks that the office section was so badly hit, then they should mourn the hospitality assets sub-sector. In Spain, which reportedly lives on tourism, most five-star hotels are still shut since the first lockdown, some hoping to open next month. Even the re-opening, in the words of Chima Okekeze, manager of a five-star hotel in Madrid, will only be for the restaurant part of the hotels. The lodging part will have to wait till September, he added. A lot of bars in Madrid, according to him, are to be shut and many may never re-open.

His words, “We thought that by now, with the vaccine going on, hotel operations would return to normal. Unfortunately, right now, there is a strong campaign against the fourth wave. Despite the government assuming upkeep of the workers, the hotel owners themselves are losing a lot of money and may never re-open.

“Nobody is coming in from outside to Spain, as all the airports still remain shut. We are just hoping that the vaccine will move faster, so that they will lift the lockdown and people can start coming into Spain.”

A research by Proshare Nigeria Limited, a financial information services firm, indicated that in March 2020, international tourist arrivals in the African region declined to -12 per cent. But that a month later, it declined further to -44 per cent.

The retail assets class did not fare any better, as there was a shift in consumer behaviour towards online shopping. A shopper stated, “Why go back to retail shopping while I am already ordering everything online.”

To further substantiate the impact of the pandemic on the retail assets class, in Lagos, most malls are experiencing low foot traffic with some of the tenants vacating their shops because of lack of patronage. At Ikeja Shoprite, some of the shops have remained under lock and key since the lockdown.


Better option

The multi-family properties like the condominiums, Wealth Migrate noted, were the stand-out best performers of 2020. In the U.S., it states, strong occupancy and collection rates, along with stimulus cheques and savings, have boosted the asset class.

The Chief Executive Officer of Wealth Migrate, Scott Picken, suggested that medical buildings, with tenants that offer critical care and procedures, are worth considering. But those that offer optional care and procedures, he said, are less of a sure bet.

“Location and solid tenants, with clear longevity, are crucial when deciding to invest in these buildings,” he said.

Like the Wealth Migrate report, in the real estate business, location is everything.

Though a good number of these assets class might have performed woefully as a result of the pandemic, a nice location could just be the magic needed to turn the situation around.

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