How is the real estate market changing after Corona? One thing is clear, something will change. There is currently a lot of speculation about the effects of the Corona crisis. In the end, who will emerge as the winner and who will emerge as the loser? From our point of view, there is a differentiated answer.

The Institute of the German Economy (short: IW) Cologne has a few days ago Study published, which expects falling real estate prices. Possible insolvencies and unemployment are given as the reason for this. According to the study, properties in the micro-apartment and luxury apartment sectors will be particularly affected. Especially in regions with high living costs (e.g. southern Germany), the risk of setbacks is estimated to be greater.

Impact on various real estate segments

The Corona crisis will not affect all areas of the real estate market equally. The Cologne Institute for Economic Research assumes the same. But which segments of the real estate industry will be particularly hard hit?

micro apartment

The micro-apartment segment will experience financial losses. Anyone who has previously commuted between two places and rented a small second home will be able to do without it in the future thanks to the newly gained opportunity to work from home. Business travel will decrease in the long run.

The everyday university life of professors, lecturers and students will also change. There will be a larger proportion of online events such as seminars and lectures. The proportion of students and university employees who are present will continue to decrease. An apartment in their university town is then no longer worthwhile for the students. Presumably, many young people will therefore live at home longer or look for locations where the real estate market is not so overheated.

Of course, you always have to look at the micro-location with the regional characteristics. This can lead to regionally falling prices if certain regions are dependent on individual branches of industry such as the automotive industry.

luxury apartment

In our view, there will be no negative effects in the area of luxury apartments. Experiences from the financial crisis have shown that luxury items have generally remained very stable. There will only be a slight weakening of demand on the real estate market after Corona, which will be overcome quickly. The fear of inflation and the further shifting of assets in favor of the wealthy will lead to a return to material assets. From our point of view, real estate prices in this segment in particular will rise in the medium and long term.

retail properties

Retail has been competing with e-commerce for years. After Corona, the real estate market will be weakened in this segment in particular. The retail trade will sustainably hand over sales to online trade. Smaller retailers will therefore not survive the Covid 19 crisis or will only survive it badly. This will undoubtedly put pressure on retail properties and perhaps create different usage strategies.

hotels and office properties

The market for hotels and office space will fare similarly. People are now used to holding meetings via video call or conference calls. In addition, many recognize the advantages of working from home. You save travel time and thus costs. So the companies will think even more about Share-Desk. Company laptops and cell phones will soon be part of our basic equipment in the digital world of work.

Who will win in the real estate market after Corona?

The winners of the crisis will be logistics and residential real estate. More space is needed here. After all, online and logistics trade is booming and will continue to do so in the future. In addition, one or the other employee will think about working from home, so larger apartments will inevitably be needed. People settle in and adapt to the new environment.

Possible problems with real estate financing

Due to capacity bottlenecks at banks, problems are already emerging in the processing of real estate financing. At the moment, all banks' capacities are being made available for the rescue of companies. This could lead to a slight weakening of the overall market in the short term. In the medium and long term, however, we see an upward trend in the real estate market after the Corona crisis. After all, investors will quickly think about how to pay for the crisis. An attempt will therefore be made to convert monetary values into non-cash assets to flee. The same effect already existed in 2008/2009 after the financial crisis, which continues to this day.

Conclusion

In our view, the German real estate industry is not in a crisis. There will only be a redistribution of investments in other real estate areas because the way of life of the population is changing permanently.

Retail properties, hotels, office buildings and micro-apartments will be the clear losers from the crisis. On the other hand, logistics and residential real estate will experience stronger demand and will clearly emerge as the winners of the current crisis.

The luxury apartment segment will not be a loser either. But on the contrary. The fear of inflation and the further shifting of assets in favor of the wealthy will continue to put investment pressure on this market segment and cause prices to rise in the medium and long term.

The era of "cheap" money will continue as it did after the financial crisis and thus continue to heat up the market. The real estate market will experience a short-term weakening due to the Corona crisis, but this will be overcome quickly.