Changes in high-density cities as a result of the coronavirus pandemic could prompt a shift in housing demand towards smaller towns and suburban or rural areas.
Current flexible working conditions could reduce demand for centralised office space, ultimately enabling workers to live further from their place of employment, says global ratings agency Fitch.
While sustained unemployment levels and economic uncertainty may also mean fewer mortgage applications, particularly for first-time buyers, Fitch expects this could result in increased demand for multifamily and single-family rental properties.
Taking in the U.S market, Fitch forecasts home price growth as likely to increase in areas where home sales and new mortgages are driven by migration to smaller cities or suburban and rural areas.
A recent report backed by the Regional Australia Institute expects the aftershocks of Covid-19 could impact regional population trends, with a growing number of millennials looking to regional areas over capital city living.
The forecast follows data which shows Sydney lost more millennials to the regions than it gained—before the onset of Covid-19—between 2011 and 2016.
In its latest report, Fitch Ratings explores the potential short and long-term effects of the coronavirus pandemic on structured finance assets in the US.
In the commercial sector, Covid-19 has caused a sudden shift to working from home altering both commercial and residential property use.
“The extent to which this is sustained beyond the short term would result in reduced demand for city-centre office space, and there may be elevated housing demand outside of urban centres, with people seeking more space as they spend more time at home,” Fitch analyst Marjan van der Weijden said.
“We expect to see these trends reflected in both residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS).”
Last-mile logistics and distribution facilities are expected to become increasingly important as online commerce partially replaces physical stores.
“Over the longer term, consumer views on sustainable consumption and our relationship with physical spaces will change different aspects of commercial real estate,” van der Weijden said.
Hotels that cater to business and event facilities are also expected to see a slump in demand over the longer term, Fitch analysts say, as companies re-evaluate business travel.
Fitch expects structured finance backed by aviation or hotel exposure to continue to feel the effects of the pandemic.