I’m sure you’ve all seen the gloomy stock market headlines of the last week as markets around the world, and especially in the US, reacted to the further spread of the coronavirus, or COVID-19. Friday, February 28, the S&P 500 finished a weekly decline to 11.5% and wiped out $3.6 trillion in market value. This was the worst weekly decline for the S&P 500 since the 2008 financial crisis.  It wasn’t just the S&P 500 that fell this week. The Dow Jones (-12%) in the US, FTSE 100 (-11%) in Britain, DAX (-12%) in Germany, KOSPI (-8%) in South Korea, and Nikkei 225 (-10%) in Japan, are all examples of indexes across the globe reacting to COVID-19.

While it is easy to see the impact that COVID-19 is having on your stock portfolio, it isn’t as clear the impact it is having on real estate. So, what are the potential effects of COVID-19 on your real estate investments? Let’s explore.


The sector of real estate that will take the hardest hit from COVID-19 will be hospitality, as it will be directly affected by the decrease in tourism and travel because of the virus. The US tourism industry is projected to lose 10.3bn cumulatively in Chinese spending alone, and the early estimates by Tourism Economics hint at a 28% drop in visits to the US from China. As the virus spreads to other countries and in the US, we expect that tourism will drop everywhere in the US—not just due to a drop in the number of Chinese tourists, but also from decreased domestic tourism. In addition, business travel is also being affected by COVID-19. Many notable business conferences including Google I/O, Facebook Global Marketing Summit, and TED have already been cancelled, and as the virus spreads it is likely that more will be cancelled. Even conferences that aren’t cancelled will most likely see reduced attendance as people rethink their travel decisions.

Due to the decrease in business and leisure travel, we expect that hotel rates and occupancy will be weaker in 2020 than in 2019. How much the performance of a hotel will be affected will vary greatly by hotel.  It is expected that hotels that cater more to international tourism or rely heavily on large conferences will see a greater drop in operational performance. Hotels located near hospitals could potentially see increased occupancy from medically driven traffic, but it is hard to tell if that would offset the decrease in tourism and business-related traffic.

It is important to note that the decrease in tourism and business travel is not a permanent change in consumer behavior. After COVID-19 is under control, we expect tourism and business travel to return to previous levels and may even exceed 2019 numbers as there is a catch-up effect of people doing the travelling that they had postponed during the initial outbreak of COVID-19.

Other Real Estate Sectors

Other real estate sectors won’t be affected directly by the COVID-19 like the hospitality sector will be, but the effect that COVID-19 has on the overall economy will affect all real estate sectors. The primary economic risk to the U.S. and global economies is the domino effect of companies being unable to source necessary component materials from China amidst multiweek-long factory shutdowns and quarantines coupled with a steep drop-off in Chinese spending (which would be worse if the quarantine continues and more companies are forced to shed jobs), slowing overall demand for goods and services.

If the U.S. and global economy slows due to COVID-19, job and wage growth would likely show a corresponding slowdown, which could cause rent growth (both commercial and residential) to slow.  Depending on the severity, it could even cause an increase in unemployment, which would further negatively affect rent growth. To the extent that companies miss their earnings meaningfully, it could cause companies to curb near-term leasing decisions until the uncertainty has passed, causing leasing activity in the office sector to slow. The residential sector of real estate is certainly the most insulated sector: effects, if any, will likely be limited to a slower lease-up for new projects and slower rent growth.

Silver Lining

One benefit of the COVID-19 to real estate investors is low interest rates. In recent weeks interest rates have fallen and the U.S. Fed signaled that they are prepared to lower rates further depending on the severity to the overall economy.

While the consequences of COVID-19 are mostly negative, it is important to remember that they should be limited to the short-term. Already, there is a decline in the number of new infections in China, more Chinese factories are coming back online, and the work resumption rate in China is rising. After COVID-19 is under control, there will be pent up demand that should provide a boost in sales. This balancing of near-term softness by later-term recovery is not a unique perspective. Economists’ expectations for the impact to global and U.S. GDP growth for the year overall suggest only minimal impacts – Moody’s Analytics, Oxford Economics, and Barclays have noted expectations of the virus to shave between 20-30 bps off global growth, while U.S. predictions range from a 20-bp impact on Q1 growth to as much as 40-45 bps.

Overall, it is likely that a real estate investor will see reduced cashflow from investments in hospitality in the near-term but little to no effect in other real estate sectors. By taking advantage of low interest rates through refinancing or locking in interest rates on variable interest rate loans, real estate investors in all sectors could actually benefit in the long-term from COVID-19.

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