By Onno Adriaansens

Co-chair European Real Estate Group and Head of Real Estate Desk, RSM Netherlands

Of the many sectors drastically affected by the COVID-19 outbreak, none may be feeling more uncertainty than the real estate market. Around the world, the ensuing lockdown sent office workers to work from home, and social distancing made it virtually impossible for letting agents to show properties to residential buyers.

As such, there are many questions swirling around this sector right now. As the business world reactivates, will organisations reduce their office footprint? How will social distancing affect the industry, and for how long? With many industries finding productivity increasing while working remotely, and employees enjoying a new work-life balance, will businesses move towards reducing their commercial real estate footprint, with agile working becoming the norm? What will the new normal look like?

Let us start by exploring the effects of the COVID-19 pandemic.

A lively real estate market takes a big hit

Prior to COVID-19, the entire real estate industry was buoyant and full of promise. Here in Europe, there was a low level of vacancy, a limited future supply, low interest rates, and capital inflow from around the world. All of the fundamental metrics pointed to a very healthy outlook.

When COVID-19 began its march across the globe and the world’s economies started grinding to a halt, the commercial real estate sector watched nervously. Droves of workers had packed up and gone home to work remotely, and over time, business leaders began to question whether physical office space was even a necessity in the 21st century. For the residential sector, prospective buyers faced their own uncertainties: furloughs meant tightened budgets and moving plans put on hold, and social distancing prevented those with means from even viewing new properties. Like so many other industries, there was a lot of negative speculation as to the impact of these developments.

As recessions go, the Global Financial Crisis (GFC) of 2007/2008 was the worst since the Great Depression and had a devastating effect on the real estate market. Here we are, not even fifteen years later, and we are in the middle of another global crisis. Yet, the situation is different, so let us now explore the different ways in which COVID-19 and the GFC have affected the real estate industry.


In 2008 there was a lot of leverage in the real estate market, but it looks like the sector is now in a better position to withstand a (valuation) shock. Some deals are still highly leveraged, but today the European real estate market is in a strong position, and where the impact of the GFC was ‘across-the-board’, the COVID-19 crisis appears to have evolved into more of a targeted sector crisis. Thanks to the recent advances in office technology, there are plenty of sectors that seem to be surviving relatively well. Others such as online retail, delivery services, and consumer durables are even thriving.

Before COVID-19, residential real estate was something of a sellers’ market because the volume of new construction could not meet the actual demand for housing. New construction has ground to a halt because of the lockdown, effectively limiting supply even more. Conversely, demand has shot up thanks to falling interest rates. The result is that families who were hoping to buy a home in 2020 are finding themselves in a slightly more competitive market than they were expecting, with home prices pushing higher and higher.

Commercial real estate, on the other hand, is in an entirely different proposition with unique challenges that range according to its various sub-sectors such as leisure, retail, corporate, and (data) storage. Some of these sub-sectors have been hit especially hard, and it is only a matter of time that the investment going into these has to be restructured. In response to this, our team is taking a proactive approach as to how we advise, discussing with real estate-investors, especially in the retail and leisure real estate, what next steps could or even should be taken at an early stage.


I have had several conversations with Howard Freedman, my co-chair of European Real Estate Group, and we have both concluded that COVID-19 will have ultimately hit the European real estate-market hard in 2020, but it will, quite quickly, change into an opportunity-market. Analysts at real estate-agencies such as JLL, Savills and the Urban Land Institute (ULI), see a lot of uncertainties, but there is also hope on the horizon as many believe that the influx of capital will come back in 2021. For starters, there is a lot of ‘dry powder’ on the side lines – or capital, in layman’s terms, that is waiting to be invested in real estate. Some projections indicate that investment will start to come online in the fourth quarter of 2020.

Initially, during an economic downturn, many investors turn to what we call ‘safe harbours’, such as residential real estate, but also triple A-offices, logistics/industrial and data centres. Several surveys form the real estate-agencies mentioned above have predicted that more parties will go abroad. In other words, more real estate-investors will also analyse the possibility for a cross border investment in Europe. I feel this will be the way forward to leverage opportunity through the COVID-19 crisis. Some governments are already making moves to facilitate investment in real estate. An example of this is the Czech Republic, where they are in the middle of abolishing the real estate transfer tax for precisely this reason.

Other smaller governments such as Cyprus have initiated government investment programmes to help prop up the market. The challenge will come when governments are no longer in a position to stop subsidising these businesses, and the ensuing bankruptcies could have even further repercussions throughout the business world.

And finally, there is the world of private investment. High net worth individuals could see the flagging real estate market as a tremendous investment opportunity. Private investors tend to work a lot with their capital in a distressed real estate-market, looking for opportunities. One can buy real estate at fair prices, still get an acceptable yield, and grab the opportunity again to sell when the real estate-market is stabilised. Some may even combine their efforts to create what we call ‘Club Deals’, which are private funds, and use them to invest in the market.

So, with ingenuity the opportunities are there – it is just a matter of finding the right solution for a particular market.

The future

As the real estate market reactivates, it is likely that the new normal, at least in terms of office space, will be determined on a case-by-case basis. There will certainly be differences between regions. But in general, one can say that some companies will choose to reduce their office footprint and allow more remote working. Others will usher their workforce back into the office as soon as they are given the go-ahead. And yet, there may even be hybrid workforces that are a combination of both, allowing their workers more flexibility to choose where they prefer to work.

And if office demands get scaled back, what happens to the thousands of half-built high rises all over the world? Do we convert them to residential? These are the questions we should consider. Whatever the case, real estate cannot simply ‘get through’ the COVID-19 crisis without a significant evolution. Real estate-investors need to rethink how we design property, build it, market it, and last, but not least, invest in it.