The pandemic caused by COVID-19 has a massive impact on financial markets and the economy worldwide. Many investors, property owners, potential home buyers and landlords are therefore asking themselves: Is the corona crisis also affecting the real estate market? Are property prices rising or falling due to the coronavirus? We will get to the bottom of these and similar questions in the following. Due to the current market dynamics we will regularly update the contents of this page dedicated to COVID-19 and real estate
Are property prices falling as a result of the corona crisis?
According to current information, no unusual developments have been noted yet. Kai Enders, member of the board of the Engel & Völkers AG, makes a differentiated market evaluation and estimates the situation as follows: The Corona pandemic leads at short notice to shifts of purchase conclusions, on a long-term basis it will, however not reduce the housing demand. For many years, the demand for living space has exceeded the scarce supply of real estate in many cities and regions. This fundamental trend will not change significantly even in the current situation, as the reasons for the excess demand will continue to exist”.
The strong demand for residential space in recent years is due to population growth and the continuing influx into metropolitan regions and medium-sized cities. This has led to a significant increase in the prices of properties for sale and rent. New construction activities were also unable to meet the high demand. Kai Enders explains: “The demand for residential space will not decrease even in the face of the corona crisis – because people will always be in need to have a roof over their heads.
The reason why the coronavirus crisis does not seem to have had much impact on property prices at the moment is relatively simple: real estate does not lose its attractiveness for investors in these times. A home can still be considered a stable investment in times of crises.
Property price development for residential real estate due to the corona crisis
The strong demand for residential space in recent years is due to population growth and the continuing influx into metropolitan regions and medium-sized cities. This has led to a significant increase in the prices of properties for sale and rent. New construction activities were also unable to meet the high demand. Kai Enders explains: “The demand for residential space will not decrease even in the face of the corona crisis – because people will always be in need to have a roof over their heads.
It is not yet foreseeable that property prices will fall as a result of the Corona crisis, given the current market situation. However, it is only possible to estimate how prices and the number of sales transactions resulting from COVID-19 will develop in the second or third quarter of this year. At present, however, it appears that the property market will remain stable in terms of prices despite the corona crisis, particularly in the major cities. Especially in times of crisis, real estate is once again proving to be a safe investment.
Property price development for commercial real estate due to the corona crisis
Commercial real estate prices are also currently still stable. However, the individual sectors have been affected by the pandemic to varying degrees. While the hotel, catering and retail sectors are having a harder time in the corona crisis, the demand for storage space and warehouses could grow. In view of the long supply chains through several countries, the tendency of manufacturing companies to set up their own warehouses could in fact increase, thereby boosting the market.
Normalisation for the office property segment
By contrast, a temporary downturn in the market for office properties could lead to a normalisation. So far, demand has been extremely high at many locations and the market has been correspondingly tense. Under certain circumstances, a growing vacancy rate could now lead to renewed movement on the market. However, like the real estate market as a whole, the office segment reacts to macroeconomic changes only with a time lag. What could happen in the short term: It is possible that fewer rental agreements, especially long-term rental agreements, will be concluded for the time being.
COVID-19 and commercial real estate: A first assessment
Dirk Beller, Head of Commercial DACHCz at Engel & Völkers, draws a first conclusion: “We are currently in a crisis. The most important thing at present is that everyone adheres to the recommended protective measures and that the number of people who fall ill remains within the limits of what our health system can respond to. Then the economy can also recover and the market for commercial real estate in every sector can pick up again. Overall, investing in real estate remains a safe investment.