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Claire de Weerdt shares four trends in real estate to watch in a post-COVID market.

1. Brick and mortar has made a comeback. In the year ending Q1 2022, ~94 million sqft of retail space in the US was filled (net adsorption) – the highest level since 2017 – indicating a strong comeback as consumers flock back into stores. Given this and the growth of e-commerce, investors may want to consider targets with omnichannel business models for investments in the retail space.
2. Office attendance hasn’t bounced back. Office attendance struggles to rebound from COVID-19, with the number of employees in NYC clocking into the office the week of June 29 being only 42.1% of pre-pandemic attendance (in June, this was 44% nationally in the US). Investors may want to be cautious with any bets that attendance will completely return to normal. A recent survey showed ~70% of workers in North America would consider looking for another job if office attendance became mandatory – indicating that there may be a more persistent trend.
3. Supply shortage continues to be the main driver for residential unaffordability. Pressure on residential affordability continues to grow from an estimated 3.8 million home supply deficit in 2020 in the US (3.5 million deficit in Canada projected for 2030), with supply chain challenges & rising building material costs further thwarting new build activity. Investors and developers can consider relieving particularly high-pressure pockets, such as starter homes for millennial first time home buyers. Millennials have helped drive the overall homeownership rate up 3% the US since 2017, after nearly a decade of decline. “The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes and that decline has been exacerbated by an even larger decrease in the supply of entry-level single-family homes, or starter homes. In 2020, we estimate that there were only 65,000 new entry-level homes completed – less than one-fifth of the entry-level homes constructed per year in the late 1970s and early 1980s” – Freddie Mac
4. Proptech investment has soared. As with many other industries, COVID-19 has increased adoption of digital alternatives and new technologies. PE and VC buyout capital flowing into Proptech companies globally has increased 6x in 2021 from 2019 values, totaling 32B in North America in 2021. Technology and software companies can be attractive in terms of growth; however, they are not all winners. Investors should be skeptical and conduct rigorous diligence around testing addressable market size, cash burn rates, tech capabilities, NPS scores, and competitive threats from big tech.

Key points include:

• Retail space
• Housing shortfall drivers
• Digital alternatives and new technologies

Read the post, Real estate markets in a post-COVID world: 4 trends for investors to watch, on Linkedin.