COVID-19 and the associated measures to combat the virus have an impact on all areas of the global economy. The real estate market is also affected – a situation made worse by the lockdown.
Wave of bankruptcies in the hotel industry
The COVID-19 pandemic led to enormous economic downturns, which were exacerbated by the lockdowns that were imposed. If you look at the real estate industry in particular, you find that both the retail trade and the hotel industry have to struggle with particularly serious economic consequences resulting from the tightened security and hygiene measures and the temporary closings. As the WirtschaftsWoche reports, there is even a risk of value adjustments that could also affect investors. A wave of insolvency is emerging in the hotel industry – the venerable luxury hotel “Hessischer Hof” in Frankfurt am Main is already affected. The operating company Tital Operations Germany, to which numerous Holiday Inn Express hotels belong, is also affected. Thus, in addition to small houses, well-known brands and luxury hotels are not exempt from the effects of the crisis.
Office and retail properties are also on the decline
In addition to hotels, the retail sector is also struggling with a lack of sales – a situation that was exacerbated in advance by the flourishing online trade. Due to the home office regulation, office space is also being reduced in size so that rental costs can be saved – according to WirtschaftsWoche. In addition to real estate companies themselves, the long-term consequences of the pandemic could also affect millions of investors who hold shares in hotels, offices and retail properties through their real estate funds. According to information available to the Handelsblatt, the Scope rating agency expects an average return of 1.5 to two percent.
That’s what the Scope experts say
In a scope analysis it is stated that open-ended real estate funds “lived up to their reputation as an anchor of stability during the COVID crisis”, according to the Handelsblatt. This references the market for open real estate funds, which is very sluggish even in times of crisis. At the end of March 2020, just under 113 billion euros should have been in open real estate funds At the end of June 2020 around 114 billion euros – 4.5 percent more than in the previous year. One reason for this is the long waiting times associated with fund sales. Investors must register twelve months in advance if they want to get rid of shares in their real estate funds; these must have been held for at least 24 months in advance – regulations that were introduced after the financial crisis of 2008, as investors withdrew their money from the funds for fear of losses, which resulted in 18 of them had to be closed. As Rüdiger Sälzle, managing director of the analysis company FondsConsult, told WirtschaftsWoche, such a scenario is currently unlikely – the opposite would even be the case, since the inflows would continue to be “at a very high level”.
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