The pandemic has impacted nearly every part of the economy, including commercial real estate and REITs. Many sectors have seen a shift from in-person transactions to a digital economy; for example, as e-commerce replaces in-store shopping and web conferences supplant office meetings and business travel.
Demand for apartments looks to be robust post-pandemic, however, as there is one feature of housing that makes it different from retail, office, or hotels: one cannot live and sleep online. There may well be changes, however, in the demand for different types of housing, including apartments, single-family homes (owner-occupied and for rent), and manufactured housing. In particular, the potential longer-term effects of the pandemic can be grouped into three categories:
- Geographic changes, if work-from-home (WFH) shifts demand from the urban core and close-in suburbs to locations farther out within the same city, or in a lower-cost city;
- Shifts in demand from one type of unit to another , if a need for more space prompts moves from apartment living to single family home (owner or rental), or to manufactured homes; and
- Changes within a living unit to accommodate the needs during the day from a person or people who are working or studying from home.
Apartment buildings may offer more services or different amenities to residents who are working or studying at home all day long. WFH requires more space to work, separate from sleeping and eating areas, especially if the worker is in shared rental housing or has children at home. This may increase the demand for larger rental units.
Most cities have mainly one- or two-bedroom apartment units, however, which may be less able to accommodate a larger number of inhabitants who are at home several days a week. This could lift the single-family rental market. In addition, households whose financial position was weakened by job loss or the failure of a personal business during the crisis may opt for rental housing, including single family rentals. Stock returns to the single-family home REIT subsector reflect a possible increase in demand, as this is one sector with positive returns over the first nine months of 2020.
There may be limits on how much of a shift in demand occurs away from downtown metro areas, however. Many city dwellers chose downtown living for the amenities, including restaurants, theater, museums, and walkable neighborhoods.
The overall supply of housing also imposes constraints on how much living patterns can shift. Housing markets across the country had little slack prior to the pandemic, as construction of both houses and apartment units have lagged population growth since the housing crisis in 2008-2009. A national shortage of housing stock, both owner-occupied and rental, single family and multifamily, limits the downside risks to prices and rents.
This is a selection from the Nareit Fall 2020 Economic Outlook, which analyzes the current state of commercial real estate markets, as well as potential longer-term structural changes that are evolving during the pandemic. See the full outlook for a discussion of other major commercial property sectors.