Real estate markets are going to take some time to fully recover from the effects of the Covid-19 pandemic, according to DWS Group, a global asset manager headquartered in Frankfurt, Germany, with offices in the United States.
The first half of 2021 will see further dislocation in real estate markets and an additional erosion of returns, but a resurgence should occur before the end of the year, according to DWS Group’s “U.S. Real Estate Strategic Outlook.”
“DWS expects a rebound, and a potentially powerful one at that, in the summer of 2021 as the Covid-19 vaccine is rolled out, promoting a reopening of the economy and fueling occupational demand,” the report said. “Apartments are expected to lead the recovery, followed by office and retail property next year.”
The firm said the current downturn will be short-lived: There are already low vacancy rates, and there's only a moderate rate of construction underway. And most important, interest rates are low.
The trend for working from home, which impacts both commercial and residential real estate markets, started before the pandemic but will continue beyond it, DWS said. People will continue to move to lower-cost locations, and there will be a greater corporate acceptance of a distributed workforce. This will be a boon for real estate in select suburbs and high-growth markets, particularly in the south.
“We believe relative yields and potential inflationary pressures will help to drive strong real estate returns over the medium term,” DWS said in a statement. “And yet performance will diverge markedly across sectors and markets. We believe that success or failure will largely hinge on exposure to two key forces reinforced, but not spawned, by the [pandemic]: technology and migration.”