The Coronavirus’ Effect on the Real Estate & Construction Industry

The Coronavirus pandemic had a significant effect on real estate and construction on a global basis. Working from home (WFH) during government mandated “shelter at home” periods has led to many employees permanently working from home, or perhaps only coming to their offices a few days monthly. This created long-term challenges for office building owners.

Overall, the impact on commercial real estate has been very significant. City center office towers are now less popular, with some companies shifting their office spaces to smaller, more accessible buildings that are closer to employees’ homes—often in the suburbs. Restaurant and store closings were massive, leaving empty spaces to be dealt with by landlords.

As of mid-2023, some major office towers were being foreclosed upon by lenders, with San Francisco particularly hard-hit. Roughly only 50% of office workers in the U.S. were back to full-time in-office schedules, with many others on at-home or hybrid schedules. In general, commercial rent prices are now lower than before the Coronavirus. However, retail and restaurant traffic has rebounded in general, outside of downtown commercial centers.

There will be opportunities for the conversion of commercial office buildings into residential apartment units. There is already some evidence of this being put into practice. Commercial leases are evolving, with growing numbers of firms negotiating with landlords to switch from fixed monthly rent payments to revenue sharing models based on a percentage of sales.

As for residential real estate, many home buyers are now looking for dwellings with dedicated, quiet space for home offices and hobbies, and more outdoor space for leisure and relaxation. Long term trends include, for those who have flexible careers, a movement of some people from dense urban centers to the suburbs, small towns or resort areas, which is a major reversal from the urbanization that had been occurring for decades. After a lengthy period of very low mortgage rates in the U.S., interest rates rose quickly in mid-2022 through mid-2023, as the Federal Reserve began to battle inflation. This slows mortgage originations and makes home buying less affordable in general. As a result, home values were declining in many areas during 2023. A significant number of affluent buyers and investors are opting to purchase homes for cash, rather than turning to mortgages.

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The Coronavirus’ Effect on the Real Estate & Construction Industry, Business and Industry Trends Analysis

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