What impact will Covid-19 have on the real estate market?

What impact will Covid-19 have on the real estate market?

The Association of Real Estate Developers (ADI), and the global strategic consulting firm McKinsey & Company , held a virtual forum with their specialists; After analyzing the effects and implications that the Covid-19 contingency has and will continue to have on the lives and habits of Mexicans, they concluded that the real estate sector and industries related to construction and real estate will have to adapt their operating models, of business and commercial to respond to this “new normality”.

Pablo Ordorica, Senior Partner at McKinsey & Company, pointed out that the impact of Covid-19 on construction will be reflected mostly this year (2020) and the recovery of the sector will begin to take place gradually from 2021.

The specialists assured that the panorama in Mexico is challenging for each of the segments of this industry . In the case of housing , the Covid-19 emergency has lowered expectations for the purchase of new homes in the next 12 months , while for the Retail segment , where nearly 200 commercial chains have already added more than seven weeks Without being able to open its stores, it has led to discounts in rents of up to 40 percent. At the Mexico City level, there is already an oversupply in the office part.

They also explained that in the face of the “new normal” conditions, real estate companies must go through and overcome four stages : the first, called Resolver , was presented once the coronavirus began to spread throughout the world, and consisted of in the ability of companies to take on the challenges that the pandemic represented in their workforce, clients and partners; in the second, Resistir , they had to address short-term cash management and direction challenges, as well as resist with the partial closure of operations and the effects of the economic blow.

The third stage called Return , which is the one the country is currently going through, is crucial, because given the high degree of uncertainty, industries must develop specific plans that respond to the most probable scenarios, in order to try to recover the pace with which they are performed and recovered quickly, and the fourth, Reimagine , in which to return successfully, industries will have to reimagine what the new market conditions will be like to overcome the challenges and adapt their offering as an industry.

According to McKinsey, in the case of Offices, real estate companies must optimize spaces to respond to a lower number of workers and density . In this regard, Ordorica added, “we expect a drop in standard office leases and a greater demand for flexible and easy-to-expand leases, as 70% of investors are considering a reduction in spaces in order to reduce costs.”. In Retail, a slight increase in traffic in convenience and proximity stores is expected, in addition to the fact that the reconversion of physical stores towards electronic commerce is accelerating, which could affect the retail surface, given what arises the challenge of how developers can take advantage of this change, and in the case of tourism the challenge will be for this industry to offer the market digital experiences to try to win back customers.

“ The real estate sector in Mexico is having to adapt quickly to the pandemic. For those who think and hope that things will go back to the way they were, we guarantee that they will not be. It is better to accept the reality that the future no longer looks like we saw it before and start thinking about how to make it work. Without a joint effort between all the players in the industry, it will be very difficult to achieve it, "said Alberto Saracho, Senior Advisor at McKinsey & Company.

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Enrique Téllez, president of ADI, spoke about how these types of exercises seek to proactively encourage the analysis of ideas and visions that allow the sector to be reactivated, in order to agree on proposals on how the real estate industry can become a trigger for the national economic recovery to generate more employment; As an example, he highlighted the more than 4.5 million direct and indirect jobs generated nationwide in 2019 by the real estate industry and related activities.

"With these seminars, we set out to address the challenges we have as a country, especially in a national and international context that has been complicated and that represents many challenges for the development of the real estate industry and the economy as a whole," said Enrique. Tellez.