The year 2020 has brought about a series of changing trends in publicly traded stock markets. When you consider that the Covid 19 pandemic has changed the way Americans shop and do business, it naturally has an effect on the businesses, hence, the market. REITs struggled to pay returns, most of them lower during the crisis. The good news is that there has been a rebound in the market since the low at the start of the health crisis and this leaves us with a bit of optimism for the future. We’ve had our eye on several emerging trends since early in the year. For REITs and any real estate related investments, here are 5 trends that you should pay attention to for 2020.
1. Acceleration of E-Commerce
There has been a tremendous upsurge in e-commerce sales since the pandemic forced millions into quarantine. Brick and mortar establishments were forced to close their doors. Those who remained opened were required to limit occupancy. Customers had no choice but to take much of their business online. We expect to see retail tenant file more bankruptcies and this will continue to impact rental growth and occupancy for those with investments in real estate. It’s hard telling what the final impact will be months down the road.
2. Increases in Telecom Carrier expenses
There is going to be a greater demand for cell towers because of the increase in virtual business transactions. More consumers are meeting online for medical appointments, education, entertainment, and more. The increased strain on the infrastructure will result in the need for more towers to be built. This is something that will impact the real estate market as changes in the way that we work and the way that we live put the stress on other industries. Although this may not sound like its related to real estate, these conditions affect every sector of the market and it is likely to have long term ramifications as well as opportunities for the real estate market. It bears watching as there will be various reactions within different sectors of the real estate market.
3. Changes in the Supply Chain Configuration
This is another trend that has already begun to affect the real estate sector. The global pandemic has resulted in multiple disruptions within the supply chain. Consumers have changed their shopping habits due to issues within the US and China trade agreements. The impacts that this has on REITs is the volatility of relations in trade and those investments that focus on foreign regions where there are tensions will begin to suffer as a result. Rents are likely to go down or to be modified due to a more lenient attitude towards struggling businesses. This will have long term impacts upon real estate investments with a focus on rents in impacted regions.
4. The emphasis is shifting towards liquidity and balance sheets
One of the biggest trends in REITs that has been brought about by the pandemic of 2020 is a greater emphasis on balance sheets and liquidity. The recent events of this year have been detrimental to many of the occupants of the real estate interests held by the REITs. Many companies will not survive the crisis and those that do may experience issues paying the rent, or paying full rent. The demand for rentals is likely to decrease as a host of businesses are closing their doors permanently. Costs are accelerating and a more conservative approach is being taken by real estate investment trusts with a new focus on liquidity. The crisis is having a domino effect in this case, from the bottom upwards to the top vs top down. It’s likely that lease agreements will also change to espouse more specific wording.
5. Portfolio Composition changes
Publicly traded REITs in the healthcare sector are being closely monitored by investors. They’re watching for any sign of red flags that indicates trouble. REITs in the public arena have begun making disclosures to soothe investor concerns and they’re presenting hopeful scenarios amidst an outlook that is more grim than anything else. Some of the hardest hit sectors within the REIT portfolios have been hospitality and retail. One strong point is the life science division of healthcare as research has been ramped up to find new treatments and vaccines for the ongoing pandemic. This is the one sector that shows a solid demand for rent collection with the greatest stability. Some other subdivisions under the healthcare sector such as nursing homes, senior living facilities are even more regulated than before. Labor issues abound and the costs of operation have increased significantly.
Within the healthcare industry, an oversupply of help has arisen in response for the increased demand for health care workers, particularly in the senior care sector, when the demand drops and the companies are left with too many workers. This is a positive trend that we can look forward to in the future after the current crisis has passed. It will leave such facilities with a strong pool of staff to choose from when it’s time to make adjustments in the worker pool.
Expect to see changes in the portfolios held by real estate investment trusts. There may be a change in the mix of properties and the sectors that they represent within the healthcare real estate industry. These modifications within the portfolio may be coming sooner rather than later.
We can thank the current pandemic for upsetting the applecart in real estate investing. The impacts have been a big hit on REITs in many sectors of the real estate market, particularly when businesses have closed their doors and the demand for rental spaces has declined rapidly. It’s not so much a gloom and doom scenario, but rather, a time for assessment and making the most common sense adjustments including shifts in the portfolio mix, and diversity. It’s a time when some losses will be noted but doors will also open for new opportunities.