The real estate market has enjoyed a good decade, and going into 2020, the outlook remained bright. The COVID-19 pandemic has slowed economic activity and increased fear, two macro trends that have weighed on real estate markets regardless of the underlying assets.
It is important to take stock of the situation and view it from a perspective that allows you to assess both the quantitative and the qualitative market drivers influencing behavior. While we tend to focus on quantitative concepts to guide investing, this type of environment is tied heavily to emotion and sentiment, and that must be taken into account.
TDA has identified several key takeaways from the current environment which will help inform active and future investment strategies. Here are the high-level insights:
- Market investors are cautiously evaluating COVID-19, causing transaction volume to slow.
- Real Estate still continues to be a sought-after Asset Class.
- Market interest rates are likely to stay lower for longer.
- The health pandemic, combined with political uncertainty (2020 being an election year) may cause significant conservatism in 2020.
Due to the above, stress may occur in otherwise good real estate assets.
It is unknown how the stress unwinds, and how fast or slow the economic engines return to normal.
Over the near-term, the best approach is to continue to monitor the market for opportunities, especially high-quality assets that are experiencing exogenous stresses due to the landscape we all find ourselves in.
Once COVID-19 has abated and we revert back to a sense of normalcy, many of these takeaways will solve themselves, and others will have to be reassessed and integrated into approach in order to position investments and portfolios to thrive in the post-pandemic era.