The hardest hit sectors being retail, commercial and the industrial sectors. Take a walk in any shopping centre, and you’re bound to see many a unit boarded up, with the words ‘To Let’ pasted all over the wallpaper covering the empty windows.
Given the extreme downturn in economic activity, this has undoubtedly left the commercial and industrial space heavily affected. Most office parks are still deserted, with many employers insisting their employees work from home. Some factories also remain unused, many to never open again as businesses shut down for good amidst the global turmoil.
With all this being said, it’s hard not to feel disheartened as a property investor or landlord. The property sector was already under heavy strain pre-COVID, so why on Earth would one want to continue to venture into and chase new opportunities within real estate?
It’s not all doom and gloom. Of all sectors, residential and warehousing is showing resilience to the current crisis. With significant drops in interest rates and a highly disproportional market in favour of home buyers, we should see some sort of stimulus to the residential sector in the months to come. No one is expecting any sort of ‘boom’ but it should keep the residential sector steady.
The fact that we are all being encouraged to stay at home as much as possible, has shown the importance of the residential market and that there is a certain degree of safety in this segment. In simple terms, people need somewhere to stay and that’s not going to change anytime soon.
Warehousing & Logistics is a niche but high-performing sector. Look at someone like Equites latest financials and it’s very clear how well they are doing. It’s becoming increasingly evident that this sector is highly-valued. With exponential increases in online shopping, the knock-on effect is the need for efficient and sufficient warehousing space for companies to meet consumer demand. These types of properties usually warrant long leases with strong brands that are likely to whether a down economy. Storage is another big part of this sector. New developments are popping up all the time and people are storing more of their goods and belongings than ever before.
Although there is a light at the end of the tunnel for certain segments, what will become of the threatened sectors? Unused office space has for some time being converted into residential dwellings and this is likely to continue. If not converted in its entirety, at least lessened to a large degree creating more of a diverse mixed-use set up. The same is likely of retail and commercial space and this transformation is already under way. Gone are the days of large shopping malls. What we will continue to see is an amalgamation of multiple property segments diversifying the risk of investors and landlords.
The beauty of real estate is that it is tangible. It is real. It can be transformed. Although the situation is dire for many landlords, the opportunity awaits smart investors and property entrepreneurs who can unlock the potential of outdated properties and bring them up to date with modern trends and demands. Developers can take property and land, and turn them into modern-day, best practice, mixed-use buildings. There will always be a need and market for retail and offices, just less of it.
The value is always in owning the land. A landlord can always change how the land is used and what is built on the land. Until we all start moving to the Moon & Mars, this isn’t going to change. The key is in being adaptable, to reading the market and giving it what it needs. At this point, the market needs less rather than more.
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