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The headlines highlighting the rise of housing markets are as common as the “SOLD” signs on lawns in neighborhoods throughout the United States.  “Despite COVID-19, Philadelphia's real estate market is booming.” “Pandemic pushing Cape Cod real estate sales, driving prices up.” But, who moves in the middle of a pandemic? Apparently, lots of people.  The world looks much different today than it did at the beginning of the year. Since the arrival of the coronavirus to the United States in January, people have adapted their lives and recalibrated their plans significantly. For many, that has included planning a move.  So, for all of the lost jobs and unknowns about how the economy will recover, the real estate industry is holding its own. Here’s what investors should know. 

What’s Happening with Real Estate?

NYC real estate sales fell by 54 percent in the second quarter of 2020, amounting to the largest decline in 30 years, according to a report by Miller Samuel and Douglas Elliman. Orange County, California reported its biggest price decline since 2009, 5.2 percent. In other words, more and more people are saying goodbye to city living.  But, things in the suburbs are booming. After an initial dip in April, May showed strong market interest, according to realtor.com.With all of the uncertainty surrounding the pandemic, what is it that has moved people to start considering a move?  “Quarantine was the greatest accidental PR campaign for the value of real estate that I’ve ever witnessed. Now, people have been inspired to invest more into their homes and push their budgets just a little bit further,” according to Forbes real estate writer Ryan Serhant.  No doubt, after just a few months, people have new housing needs. Remote work is looking like the new norm. Outdoor space feels less optional. And suddenly many families with kids need to find space to not only work remotely, but also facilitate virtual learning for their kids. Welcome to 2020. “Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life,” according to housing website Curbed Add strong interest and new needs to attractively low rates, and the sales started. The average for 30-year fixed mortgages fell below 3 percent for the first time on record in June, prompting more people to consider buying. And so, the headlines and the “SOLD” signs followed.

So, If Everyone Is Working at Home, What’s Happening to Office Space?

For corporations, office space can account for the second largest expense following payroll. Companies know that. Moreover, these same companies realize that their offices are currently sitting largely unoccupied.  Companies are anticipated to reduce office space over the next three years, according to a report by CNBC. Similarly, a Reuters analysis of 25 large companies indicates that they plan to reduce office space over the next year.   According to a May report by Moody's Analytics, “As employers have been compelled to execute remote working policies, national vacancies may break the 20% mark by 2021, and effective rents in some markets like New York may fall by close to 25%.” But, not every business is turning in their notice just yet. Most office leases run from three to five to seven or 10 years, so some businesses are just stuck with the space.  That’s good news for investors, who aren’t feeling the pain.  According to Reuters, “concerns about declining office space use have not hurt commercial mortgaged-backed securities, with the iShares CMBS ETF up 4.4% for the year to date.” Why the continued success?  Offices are useful for everything from building work relationships to expressing organizational values and aspirations, according to the Harvard Business Review. Companies, especially those with a nearly all-remote workforce at the minute, know that better than anyone. And so, commercial offices are probably not going away in their entirety. They will, however, emerge on the other side of the pandemic and are likely to look much different.  For one, office spaces might simultaneously scale down and become more dispersed, with flexibility to locate near clients and foster high-quality connections between staff, according to the Harvard Business Review. Moreover, space will increasingly become mixed-use, extending its hours of life beyond the 9-5. This means offices that have retail, dining, and other features that invite community members, keeping the space busy beyond the workday hustle.  But, don’t expect a boom of new office space in the near future.  The Detroit Free Press reported in June about ongoing office space construction that might be at risk. In addition to the unknowns about the need for new, Class A spaces in the short term, the supply chains that delivers building materials have been impacted by the virus.  Part of the question is: will businesses decide to keep more remote work arrangements permanently, relocate their offices to less-expensive suburbs, or will they keep with the status quo?

Still, Real Estate Investment Is on the Uptick. 

Despite all of the uncertainty, according to a Gallup poll, real estate remains a top investment choice for Americans. As the stock market looks more uncertain, real estate looks safer. Not to mention the historically low interest rates that have helped families move into new homes.  Roofstock, a platform for investors to buy and sell single-family rental properties, has experienced substantially increased web traffic since the coronavirus arrived, indicating that global investors are on the lookout for less volatile investment options. The bottom line: real estate sales and investment is on the rise. The informed investor can find ways to invest in both residential and commercial real estate in unique ways.   [/vc_column_text]

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