By: Erica Jevons Sizemore, writer for New Homes & Ideas
This is the third of a four part series: What is making the Triangle so desirable in 2020? Look for additional insights in the issues to follow.
Even among the most optimistic of mindsets, 2020 has been an understandably challenging year, one with which we find ourselves reflecting about many things. In the Triangle and across the nation, we have seen a shift in the socio-environmental context of our homes, work, schools and areas of play. Impact from the coronavirus has not only resulted in one of the worst economic charts of our lifetimes but also brought with it a daily reminder of its relevance. Although the year seems fraught with unforeseen threats to continued growth, area headwinds should help buttress the longer-term outlook and be a saving grace to the impact of the coronavirus pandemic for the Triangle.
We shift our focus a bit in this issue, not so much centered on what has been for the Triangle area but more importantly what is to come. As we continue to unpack the real estate and housing environment regionally with specific attention to the impact and outlook post-COVID, the question “Why the Triangle?” becomes even more relevant.
Impact to the real estate market will likely vary greatly by sector and depend largely on the duration of the shutdown and what aftereffects we experience if healthcare systems and medical technologies cannot find a method to confidently address the virus. However, both the residential and commercial real estate industries have the chance to help the economy in recovery.
While home buyers and sellers quickly retreated when the COVID-19 pandemic hit earlier this year, the sudden stifling of supply on the heels of prolonged pent up demand locally has yielded a shortage of inventory. This has the potential to drive up prices when homes do finally make it back to market and stimulate home building. And while properties may be staying on the market a bit longer, to date, asking prices have remained in positive territory. RedFin Chief Growth Officer, Adam Wiener notes, “New listings have increased every week (since mid-April), but can’t keep up with demand. Sellers who can wait are still sitting on the sidelines.” In the first full week of May, on a seasonally-adjusted basis, RedFin measured 5.5% higher demand than the pre-pandemic period earlier this year, and HousingWire reported a noticeable increase in real estate applications, strikingly similar to the start of a steep V-recovery. Although we experienced a decline in home sales as a result of stay-at-home orders, job loss, and tightening bank policies at the onset of the crisis, the housing market could end up being more resilient than many homeowners and would-be buyers might think.
We have been hit by an outside force rather than a financial system issue like 2001. At that time, in a state of similar uncertainty, people fled the stock market as volatility became too much for many to stomach. They instead looked to more tangible assets in their homes and real estate opportunities, resulting in a 5-year real estate boom. For many, in doing so, consumer spending on home improvement, materials and services followed. Today, with lifestyle shifts resulting from the coronavirus, we may see that trend resurface among homeowners who seek larger residences to accommodate work from home options, home gyms and additional space to spread out. As a result, demand for new homes, remodeling and renovation projects may also increase.
Although we predominantly focus on the residential sector of the real estate market in New Homes & Ideas, the commercial real estate arena has been more abruptly impacted by the coronavirus. Commercial real estate firm, CityPlat, had only recently moved their headquarters to Fayetteville Street in downtown Raleigh when the pandemic started shutting down daily business activities as stay-at-home orders went into effect across the state. Pat Moore, Principal at CityPlat, felt a “pause” among business owners, investors and colleagues. Moore went on to say, “We extended contracts as many waited to see what would be on the other side of this crisis. But we are not pumping the breaks just yet. One thing that never changes is location, and well-positioned real estate is poised to better weather these types of storms.”
While the first quarter of 2020 saw strong commercial real estate sales across the board, transactions were down 40% in March, compared with prior year activity, according to Newmark Knight Frank. The duration of the pandemic will likely determine whether this trend continues and opportunities arise. As debt forbearances pass and collections resume, there will be those looking to pick up assets that have been impacted by COVID-19 at distressed prices, like the team at CityPlat. Moore feels that, “Six months from now, we will see opportunities presenting themselves. While certain industries may look dramatically different in the coming years as a result of COVID-19, we feel the office sector will come back strong even among companies who have moved temporarily to a remote workforce. Many companies will need more space and square footage to accommodate social distancing, tackle productivity concerns and revitalize social interactions and interpersonal engagement in the workplace.” The question is whether the work-from-home shift sticks and whether we ultimately see job growth and workforce retention.
In the industrial and warehouse sectors of the real estate market, there is the obvious short-term impact of supply chain interruptions but the long-term effect of the coronavirus is bullish to the extent that people will continue shopping online. Vendors, warehouse, shipping, and logistics will be full speed ahead in this shift among consumers. With Amazon coming to the area in the way of a fulfillment center and a new physical storefront location in the Crabtree Valley Mall, the Triangle is at the helm of this continued trend which will help employ more people and support the economy locally.
The pandemic will also help to shift our focus towards hygiene, health and technology systems especially for areas of commercial real estate including multifamily, hotel and entertainment venues where larger groupings of people are typically present to stay relevant and retain employees and customers.
The Triangle boasts less population density and reliance on public transportation and will likely be as attractive, if not more so amidst these changes, to workers coming from larger cities which have suffered more greatly throughout the pandemic. Research universities, a strong pharmaceutical and technology presence, and tax-based employment in the State Capitol positions the Triangle nationally to fare better than other metros of the same size.
Growth across the Triangle area has been impassioned in recent years, and the area entered the shutdown with strong demand for growth, a shrinking vacancy rate and rise in leasing rates presumably yielding a smooth recovery once the crisis passes. The overall metro area stands at over 2.2 million residents as a result of the growth we’ve experienced, and while recessions historically result in a slight drop in population growth among metro areas nationally, the annual growth rate is only expected to drop slightly from where it’s been at about 4% per year to 2.5-3.0% in the near term.
By mid-to-late summer, we all hope to have a lot more clarity on what to expect going forward. Those with an optimistic mindset will likely take the spring economic figures with a grain of salt. CDC and stay-at-home protocols, fear among uncertainty, business closures and jobs and unemployment figures across the Triangle and the nation were grim, but overall the area appears to be in a position of strength in the post-pandemic marketplace. The crisis has been largely a reminder of how deeply woven together the Triangle community is and the synergy it brings to our home and work life, education, retail, dining, entertainment, the greater outdoors and social norms of our day-to-day. As we address the health crisis, everything looks to follow. And unlike the Great Recession of 2008/2009, once we are able to contain the coronavirus (whether that be by social distancing measures or medical breakthrough) and everything starts to normalize, the area could see a strong upswing. As Moore contends, “Raleigh is already a burning fire. COVID-19 may act like adding diesel fuel to what we already have happening – slow burn and slow growth – we have a great environment, and our local economy will be stable as a result and help us come out of this.”
Erica Jevons Sizemore is a Broker, Realtor, and Certified Luxury Home Marketing Specialist (CLHMS) with Coldwell Banker HPW & Halffull Properties LLC. Erica’s background in finance and marketing is matched with a personal passion for an unparalleled experience, love of home design and inability to sit still – always brainstorming how to better position her gregarious clients to support their lifestyle and financial ambitions in their real estate endeavors. Erica joined Coldwell Banker Howard, Perry & Walston after 12 years in finance with Morgan Stanley and having worked as the marketing director for Berkshire Hathaway HomeServices York Simpson Underwood Realty in the Triangle. With a love of North Carolina and all things Raleigh, she has been an active volunteer and committee chairperson at many of our local community standouts, among them the North Carolina Symphony, Carolina Ballet, and Raleigh Chamber, and currently serves on the board of directors for the House of Hope NC.