How COVID-19 is Fast-Forwarding the Way We Invest

By Charles Sells

2020 was a year of big changes, but many analysts insist most of those changes were already heading in our direction before the COVID-19 pandemic emerged in the United States. Since many economic shifts and changes in consumer preferences are directly affecting investment strategies for today’s real estate investors, it is important to identify trends that have simply accelerated but are likely to be lasting nonetheless and those likely to be temporary and, as a result, potentially reverse in the relatively near future if vaccinations prove effective and the economy continues to reopen.

Short-term trends, such as “revenge shopping,” are likely to emerge, affect every aspect of the consumer economy, and then fade relatively quickly. This is a relatively typical response in consumer-based economies in the wake of economic hardship, but the difference, write McKinsey & Company analysts Kevin Sneader and Shubham Singhal, is that COVID-19 affected services in particular. “The bounce-back will, therefore, likely emphasize those businesses, particularly the ones that have a communal element, such as restaurants and entertainment venues.”

This could affect real estate trends significantly in the short term as homebuyers opt for more urban, community-oriented dwellings with access to attractive dining and entertainment options. However, the trend toward the suburbs and even rural areas had already begun prior to the pandemic and was only accelerated as households sought single-family residential options with plenty of living and workspace both indoors and out.

While revenge shopping may affect home preferences in the short-term, the long-term trend is likely to continue.

Screen Time is Up and Likely to Stay that Way

Between 2008 and 2018, screen time on mobile devices increased nearly 12 times over. This was a natural occurrence as smart phones emerged, computers became more affordable, and classrooms incorporated digital learning wholesale. That trend was only going to continue, but the coronavirus, digital learning, remote work, and a lack of non-parental childcare options during lockdown sent those numbers through the roof. Between 2019 and 2012, screen time rose 21 percent for individuals under 18, and every region of the world has experienced massive spikes in internet usage.

“Even as more workplaces and schools begin to operate normally again, it’s doubtful that screen time will drop back down to pre-COVID levels,” reported Visual Capitalist creative director Nick Routley in collaboration with the World Economic Forum.

This increased acceptance of screen time and normalization of it will affect how we find investment opportunities and, perhaps even more importantly, how we exit those opportunities with solid returns and positive profits. From syndications to fix-and-flip deals, the ability to leverage the internet to get a deal done will play a huge role in the level of success real estate investors experience in the next decade and far beyond.

An investment in your ability to appear in your target market’s field of vision via their preferred screen is likely to be one of the most lasting and productive investments you will ever make.

The Travel Industry Recovery Could Lag Along with Work Trips

Part of the “revenge spending” economy will likely include a large number of vacations, particularly in the United States, where households publicly and, in some cases, with vitriol, mourned their inability to get out of town due to travel restrictions, beach lockdowns, and limited air travel. Discretionary, leisure travel is likely to rebound long before the business-travel side of the equation (which brought in about $1.4 trillion annually in the hospitality and travel sector along with about 70 percent of revenues for high-end hotels) does so.

This will affect homebuyer preferences in many cases since homeowners may begin to feel, as they did before the pandemic, that their home base is not as important as their ability to travel outside it. However, as business travel continues to lag and a large portion of the population elects not to return to the office or participate in business travel and face-to-face meetings, the absolute necessity of remote-work space in residential homes will continue to play a role in the location in which buyers wish to live and the types of residences both buyers and tenants prefer.

While business travel managers predict that 2021 business-travel spending could be about half of what was spent in 2019, most agree that business travel will eventually return “at scale.” However, they said, it is likely business travel spending may never return to pre-pandemic levels due in large part to changes in the way Americans, in particular, work. This will likely lead to an ongoing preference for larger homes, more easily available in suburbia, and for markets in relatively close proximity (four hours or less) to attractive leisure-travel destinations, such as the beach.

Digitalization is the Fourth Industrial Revolution

When COVID-related economic lockdowns hit businesses around the country, the well-lit office buildings of most cities went dark – at least temporarily. At the same time, digital lines of communication and operations lit up like never before, with many executives reporting their companies had moved “20 to 25 times faster than they thought possible” when it came to building out supply chains, improving data security, and increasing the use of advanced technology in operations. We were already living in a world where game-changing technologies were moving from novelty to productivity drivers, but transition areas like artificial intelligence (AI) still seemed at least a decade away from conventional, day-to-day application.

However, McKinsey & Company reported, in October 2020 a survey of companies indicated companies are now three times likelier to conduct about 80 percent of customer interactions digitally and, in many cases, leverage some form of AI or other advanced technology to do so. Real estate investors will see this both from project managers who may elect to conduct far more client-relations work online and in the ways that they evaluate potential investments prior to placing capital with a project or syndication.

Furthermore, many consumers are experiencing a decline in their own brand loyalty as a result of the many different ways in which product-providers are reaching target audiences today. This lack of loyalty is likely to extend into the investment space at the worst time possible for “old-school” networkers who rely heavily on in-person exchanges to build up client lists and fund projects. It will be vital to future success in real estate (and, indeed, in most investment sectors) to find the ability not just to reach potential customers and clients online but also to refine your ability to connect with them in meaningful, loyalty-building ways.

Charles Sells is the founder and CEO of Platinum Investment Properties (PIP) Group, a boutique investment firm with an established presence in many of today’s hottest southeastern real estate markets. Learn more at PIPGroup.com.

 

About the Author

Charles Sells is the founder and CEO of The PIP Group, a turnkey service provider that focuses on investments in distressed real estate assets including tax liens, tax deeds, traditional foreclosures, fix-and-flips and long-term cash flow acquisitions. He has been involved in tax lien investing for over 20 years, during which time The PIP Group has grown to become one of the largest agencies of its kind with nearly 1,000 individual and institutional investors worldwide.

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