Study by EY Foresees 2-Year Impact on Real Estate Sector by Covid-19

23 June 2020 A survey carried out last month by the consultancy EY, predicts that the economic damage wreaked by Covid-19 will last 24 months. While market commentators and pundits have been speculating about the impact of the coronavirus, EY’s Real Estate team carried out an extensive survey of 300 real estate professionals from different sectors of the real estate industry in Portugal.

The general conclusion has been that the government measures to protect the economy and prevent a future crisis will largely determine how the effects of the current pandemic play out in the near-to-medium term.

Most of the study’s respondents believe that while confidence is sure to suffer a slight hit, investment plans are likely to undergo a temporary suspension. Half of the respondents expect a crisis in the sector, but think that it will last no longer than 12 months. Those same respondents believe that the industry will regain the highs of 2019 will within two years.

Demand in the residential segment is forecast to fall by 40%, while prices should decrease by 20% over the next six months., with an eventual rebound over the next 24 months.  The luxury segment, primarily sustained by foreign investors, is likely to escape much of the expected impact.

The demand for offices is also expected to drop by 20%, again with a recovery over the next 24 months. Prices, however, will decrease by a lower amount, 10%. The pandemic’s effect on the retail segment, though, is likely to be more severe.

The logistics and industrial segments are forecast to undergo a period of adjustment to the new reality. The pandemic revealed weaknesses in supply chains which have strengthened the existing movement to focus on last-mile solutions. The logistics sector, in particular, is likely to benefit from an increased focus on e-commerce and faltering sales at retail shops.

Possibly one of the worst-hit sectors will be that of tourist accommodations. Demand is likely to fall by 40%, with a 30% decrease in asset values, a 50% decrease in RevPAR and a deeper downturn over the next 24 months.

Original Story: Jornal Económico – João Moura, Head of Real Estate, Hospitality, Construction & Infrastructure EY, Transaction Advisory Services

Translation/Summary: Richard D. Turner