While the COVId-19 pandemic shook every industry including real estate, the recovery has begun. The output has already peaked above pre-COVID-19 levels, and jobs are recovering to previous levels. However, more important than that is a new reality setting in. 

Real estate is governed by more variables today than before. Areas previously thought to have the most value aren’t as hot anymore. Big cities which commanded huge prices and extravagant lifestyles don’t make sense anymore. 

Remote work and online video conferencing have changed real estate buying decisions. Even certain buildings and properties are now obsolete. Managers and owners are looking at how they can be repurposed. 

Let’s take a look at how recent developments in the property sector are changing the real estate market. 

Real Estate is Picking Up Steam in 2022

2022 sees the return of the real estate boom

By and large, home prices have been rising and will continue to rise. This is more than the COVID recovery at work. It’s also the effect of the hybrid, remote work model. Now that companies have realized that it’s a viable option, homes are more important than ever. 

Sources like Bloomberg have insisted that the rising prices are not symptomatic of an impending bubble. The data shows that access to credit has been restricted in the current market. Hence, the rising prices are indicative of citizens buying houses with cash in hand. 

Again, remote work and the prospect of living and working in the same space is extremely important to this trend. Now, more than ever, people are looking for a shared living space that can work as a home as well as an office. 

However, it’s important to note that demand is, as always concentrated in certain areas more than others. The market will always prefer a home in Biscayne Bay to one in Akron, or Detroit. Some areas will simply have a higher demand than others due to factors including population or work prospects. 

However, as you will see, the most in-demand places are no longer New York City or Los Angeles (see below). In fact, cities in Tennessee, Texas, Colorado, and Arizona are seeing a real estate boom. This is due to a greater abundance of homes in areas like Phoenix and Tampa rather than New York or LA. 

These markets also present more affordable prices now that the pandemic is over. Hence, the combination of remote work, and affordable housing is driving the real estate markets in these areas. Private investors are forking over to own 1 out of every 7 homes sold in the US today. That’s the value of homeownership today in a nutshell. 

The final driver of the rising real estate market prices is, of course, inflation. Inflation is currently high all over the world in all industries including food, energy, etc. Hence, it will continue to drive prices higher in the real estate market as well.  

Climate Change is Finally Starting to Hit the Real Estate Sector

Climate change is affecting real estate

Climate change has finally begun to affect real estate verifiably. The devastating wildfires and catastrophic floods are signaling to the world that living as we are now, isn’t sustainable. Cities like New York, Louisiana, and parts of China and Europe have been inundated with flooding. 

According to a PwC survey, 82% of respondents have singled out Environmental, Social, Governance (ESG) elements as factors influencing the investment. The reasons for this still seem to be fairly practical rather than driven by an overall sense of planetary responsibility. 

52% of the ESG respondents based their decision to factor in climate change from a risk management perspective. Real estate investments based on sound environmental decisions would more likely maintain relatively safer from flooding or wildfires. Also, they would have a greater chance of being valued more highly than traditional real estate investments. The latter is likely to fall in value in the coming years. 

48% of the respondents who favored ESG when making real estate investments cited tenant/investor requirements. Millennials and Gen Z, as well as future generations, would be more likely to invest in environmentally friendly ventures. Hence, it’s more important to appeal to their sensibilities and their preferences. 

Moreover, homeowner’s insurance in areas affected by climate change, or in areas at risk of climate change has risen. Hence, that is a very practical factor when it comes to investing in real estate. Tenants, owners, and real estate investors will all consider these financial factors when choosing real estate in the future. 

Whatever the case may be, it’s easy to see that climate change has begun to affect the real estate sector. This is a trend that may not be going away any time soon.  

The Pandemic Has Not Affected All Real Estate Sectors Equally

Real estate sectors have all not suffered equally under the pandemic

The pandemic has spared no corner of the world. However, it hasn’t affected all property markets or industries equally. Certain sectors like industrial properties have barely been affected, if at all. A surge in online spending during the pandemic has given rise to tenant demand as well. The same has been recorded for multi-family properties where tenant demand has risen. In fact, rents have begun rising to record levels throughout the country.  

On the other hand, the retail property sector’s decline has been accelerated. Stores have closed, businesses have shut down, and others have been bought out. 

There are some exceptions like dollar stores, home improvement retailers, and of course, grocery stores. Another sector that is booming is the self-storage industry. Several people invested in keeping their valuables or their essentials in self-storage facilities during the pandemic. The sector grew to such an extent that it caught the eye of Bill Gates.

Office space real estate is in the middle of a reset as well. Offices are shared spaces that have vastly different requirements than before the pandemic. Now, they need to have flexible layouts, better hygiene, and ventilation systems. However, vacancies are still predicted to keep rising. Why? Well, remote work and hybrid models have worked out better than expected. Major companies with thousands to hundreds of thousands of employees have accepted the hybrid model for good

The Soar in Real Estate Demand is Concentrated in Specific Areas

Certain sectors are seeing a rise in real estate demand

Due to the COVID-19 pandemic, there has been a shift in the country’s top real estate markets. They are losing their appeal due to a few overarching factors.

The concept of remote work which translated so well for the needs of the pandemic struck a chord. Now, people have realized they can work from anywhere and spend less on living expenses. Living in the same big city as your office is no longer a must. You also don’t need to spend too much on transport due to remote or hybrid work models.

According to PwC’s Emerging Trends in Real Estate Report these are the top-ranking real estate markets for 2022:

  1. Nashville
    2. Raleigh/Durham
    3. Phoenix
    4. Austin
    5. Tampa/St. Petersburg
    6. Charlotte
    7. Dallas/Fort Worth
    8. Atlanta
    9. Seattle
    10. Boston

Nashville and Raleigh/Durham, the top 2 cities on this list actually have populations of less than 2.5 million. That’s wildly different from the scenario that you would imagine before the pandemic. Big cities with large populations usually made the top of the list. Former metropolitan cities like San Francisco and Los Angeles all failed to crack the top 10. 

The idea that taking meetings over video conferencing apps like Zoom and Skype is no longer in the testing phase. 2 years of raw data in the most aggressive environment has made it a commercially viable standard. 

Of course, occupations that require manual labor or intensive care, and a hands-on approach will still require on-site involvement. However, as the world shifts to electronic and online occupations, living close to your workplace is no longer necessary. 

Let Michael Gailliot Homes Be Your Guide In the New Real Estate Market

The US real estate market has changed after the pandemic. What seemed like a sound investment before may not be one today, but keep an eye open for opportunities. New factors are influencing prices, and new prices are influencing the market. 

If you’re confused about what decisions to make, don’t fret. Just consult your real estate agent in Woodbridge at Michael Gailliot Homes. We will guide you through the ups and downs of this market, and so that you can make informed decisions.  

So, come to Michael Gailliot Homes. Your dream home is waiting around the corner.

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