REAL ESTATE MARKET IN THE TIME OF CORONAVIRUS

Author: Marija Urban, Business Planning Manager, Novaston Asset Management

Marija Urban

While the previous year was remembered for the strong expansion of all segments of the real estate market in Serbia as well as throughout the Balkan region and was especially marked by competing investors, rapid increases in turnover, the opening of new markets and a significant increase in supply, it seemed the year 2020 would be decisive in consolidating the position of key players and opening up opportunities for the arrival of new investors who have, so far, focused on developed countries of Western Europe.

Today, when it is quite clear that the world is facing the largest and most widespread crisis in modern history, many questions remain unanswered and its undeniably clear, the situation is evolving rapidly. Governments, communities, employers, and citizens around the world have made every effort to contain the situation that has plagued us over the past 20 days. Under the influence of the crisis, all industries and sectors have forcibly grouped into three sectors:

  1. The first sector, whose development and evolving is positively influencing by this crisis and is facing rapid development, includes health care and pharmacy, IT services, e-commerce and telecommunications and media
  2. The second sector, whose members will survive stagnation with uncertainty, includes the food industry, agriculture, energy sector, financial services and consulting
  3. And third sector, the broadest area that will face a drastic recession, includes hospitality, tourism, entertainment, consumer services, automotive, wholesale and retail, transport, metallurgy, mining, electronics, and construction

The real estate industry finds its place in this division between the second and third groups and is currently facing stagnation and/or major losses depending on the type of sector in question.

  1. The retail sector was among the first to experience a sudden halt. Large manufacturers are changing the purpose of their manufacturing plants, luxury brands, breweries, and distilleries are converting to the production of sanitary materials and disinfectants. In Serbia, as in other parts of the world, in the last two weeks most shopping malls, restaurants, and retail outlets closed its doors, leaving grocery stores, drug stores, and pharmacies only one open. Other retailers face enormous difficulties in maintaining their businesses, retaining their workforce, and directing sales to online channels. Unfortunately, many well-known brands, as well as small local retailers, will be closing their doors forever under the influence of this crisis. Companies that focus on prudent strategic planning will need to make crucial decisions by understanding the changes that are taking place, analyzing competition and international trends, assessing liquidity, rationalizing portfolio and making significant savings in supply chains.
  2. The office sector is the second in line to face significant losses. The company's global reorientation to work-from-home leaves hundreds of thousands of squares empty, while the owners of these spaces will remain uncertain about their rental income for an indefinitely long time. What is certain is that the coronavirus will not directly and irreversibly destroy the concept of working in traditional office space, but a global work-from-home experiment will surely influence the future of traditional office typology upon summarizing the positive and negative effects of this global change on contemporary business patterns.
  3. While the retail and office sectors are most affected by the crisis in the real estate industry and face large losses, the industrial-logistic and residential sectors are stagnating with potential losses in the future. Some factories continue to operate smoothly for as long as they have supplies of production materials, or can obtain them from other suppliers. However, the problem will arise when these supplies are used up, and the question arises as to whether they can be acquired elsewhere, probably at a higher price and lower quality. The pre-crisis rented warehouses remain full, but the payment power of tenants facing the crisis in their spheres is questionable over the longer term. The residential sector, on the other hand, will certainly be affected by the expected reduced solvency of the population, driven by the collapse of the economy and the large wage cuts and layoffs that lie ahead. Banks are also expected to adjust their credit policies with a special focus on debt collection currently under a moratorium and the future benefits of credit arrangements in the post-pandemic period are in jeopardy.

In the light of the present crisis, industry experts, especially those in the fields of investment, evaluation and retail and office segment, while participating in online conferences, panels and discussions have the difficult task of looking at all aspects of the crisis and finding a global solution, with a comprehensive view on facts, predictions and wide picture of what lessons we can learn from the situation we are in and how to prepare for future trends.

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