“New normal” in real estate market – the impact of COVID-19 crisis

Marija Urban, Business Planning Manager

Although at the onset of the crisis we feared that the economic recovery would be long and arduous, this did not come to pass. Already in mid-2021 global production exceeded the 2019 level, and at the beginning of 2022 employment rate is rapidly rising. Despite the negative assumptions made at the start of the pandemic, the commercial real estate market has shown a high level of resilience in the past two years and excellent adaptability.

A real estate market segment that has faced the biggest challenges globally is the hotel sector. It saw a significant decline in revenues and profits while constantly striving to cover lease costs and current debts in 2020 and 2021, with the continuation of the same trend. Many hoteliers had to repurpose space, reduce operational supply while increasing efficiency, accelerate innovation and recapitalization while retaining a special focus on reducing costs, consumers, consolidation, and capital investment.

The ability to adapt quickly to changes in the market and the desire to maximize flexibility has proven to be the main weapon for the survival of companies

Office space is another real estate market sector that was forecast at the pandemic’s start to suffer significant losses. Now, nearly two years into the pandemic, it is evident that the demand for office space has not abated, which shows that the work-from-home trend is short-lived despite the sudden rise in its popularity. The decrease in the occupancy rate is more a consequence of a sharp increase in supply in the market than a decrease in demand, and current trends are moving towards its stabilization.

For example, the amount of available office space in Belgrade in 2021 increased by 11% compared to 2020, mostly for A-class projects. Five new large projects in the city are expected to be completed in 2022.

In the retail sector, investors are turning to retail parks, which in the previous two years proved to be a safer investment compared to shopping centers due to the open concept and adaptability to the pandemic measures. This is evidenced by the fact that during the third wave of the crisis at the end of 2020 and the beginning of 2021, open-air retail parks operated smoothly, while covered shopping centers faced Covid-related constraints. The footfall and turnover point to the success of this retailing concept and its increasing popularity both in Serbia and in the region.

As regards the industrial and logistics sector, its progress is rapidly evolving with an increasing number of domestic and foreign investors who are developing projects both for speculative purposes and their own needs. This is partly brought on by the local economic development, higher foreign investment, and post-pandemic recovery. The rapid development of e-commerce and online sales, fueled by the pandemic, has boosted the demand for this type of space.

Finally, the residential sector also experienced staggering growth in 2021, despite the forecast stagnation due to the crisis. The data of the Republic Geodetic Authority show that the third quarter of 2021 saw about 30% higher investment rate in this market segment than 2020 and even 70% higher than the third quarter of 2018. Demand for housing under construction is particularly high due to its lower prices in comparison to completed apartments, particularly taking into account the constant growth of prices on the market, both in Belgrade and throughout Serbia. Besides demand, many different factors influence the rise in prices per square meter, including the higher cost of construction materials and delivery issues, higher prices of services offered by contractors, and the lack of labor.

Apartments are still the most sought-after “commodity“ on the real estate market in Serbia with prices rising steadily since 2013.

Just as after the 2008 global financial crisis, some players in the real estate market will overcome challenges, adapt to the circumstances and prosper, while others will fade. They have to make brisk decisions to stay afloat in these challenging times, but also to retain an advantage and be prepared for the moment when the industry starts to evolve unhindered again.