Real Estate will witness a shift in investments from hospitality, commercial office, retail & F&B to warehousing, REITs, Healthcare and education RE, etc.
Hospitality will see most investment outflows, followed by the retail segment. Since multiplex screens were one of the key crowd pullers for malls, consumers shifting to home streaming will reduce overall footfall at malls/retail locations.
Recently debt MFs and deposits in banks have been seen as rather risky investments than before, so REIT investments (non-commercial in focus) will pick up in future which is beneficial to builders as well. I feel the illiquidity in RE will also enable investment to shift from RE properties to REITs. The Government might introduce other category REITs to help the sector, and that might ultimately converge the yield across categories eventually with REITs available to buy in various classes.
Investments other than Real Estate will see shifts from luxury & discretionary to more essential in the short to mid-term. Online gaming, web meeting tech, remote work collaboration tools, cloud infrastructure tech, portable home desk equipment, Healthcare and Insurance, EdTech and remote skill developing business, etc.
Structural vs temporary demand shifts – COVID-19
Most of the business / products have become non-essential in the lockdown phase. If the virus situation continues for a mid to long time, the changes will be structural in nature and many will adopt the changes permanently. The WFH phenomenon will see structural change for many IT companies. Average size of an apartment/house can arise if work from home picks up in the long run which will attract more investments in the long run.
Consumer spending will shift towards non-essential over time gradually, and the shifts in buying pattern will also shift significantly to online, to reduce contact with more people. Due to the job market declining, overall demand is to be hit significantly on luxury / discretionary spends since disposable income will reduce a lot till lockdown is lifted.
Unlike WFH trend, travel and hospitality will be temporary shift in nature, since it is observed due to lockdowns and not personal choices. Once it is safe to travel, travel will be opened and initially it will see high uptick and will streamline in a few months’ time frame.
New opportunities Post Covid-19
Geography-wise, since China is being blamed for not controlling contra outbreak, many countries including the US are planning to incentivise companies who shift out from China. Japan, India, Vietnam, etc will be benefitted by this move, if other countries follow the US narrative about china. Industrial space will see huge demand and opportunity if India attracts companies shifting from China. All support businesses to manufacturing like B2B logistics, contracting, industrial services, housing, etc will see high demand in and around the manufacturing hubs.
Since logistics (last mile) would be preferred since it’s a less contact based delivery model, warehousing for e commerce will be the next growth in real estate models. Residential and commercial space will see less supply since many builders would not be able to complete projects and hence the completed projects will not see decent demand instead of any downward trend in prices.
Many businesses have realised that space is not really required and WFH works for small and even large teams. So, I expect co-working space requirements to pick up pace after 6 months or so. Tech tools have enabled many to drop standalone leasing plans and hence co-working / flexible rental options will pick up pace.
Healthcare space requirement will pick up pace on governments realising the existing infrastructure is not enough and more private / public infra is required to cater to similar crises in future.