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Alternative segments are vulnerable to the Covid-19 crisis
26 March 2020 | Vanessa Sousa

The Covid-19 pandemic crisis, which currently hovers over the global market, has also reached the real estate alternative segments.

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The flexibility and short-term contracts which the co-working, co-living and student housing segments usually present are not in their favour, and make them vulnerable to the crisis. Senior living, on the other hand, remains resilient, despite also present some risks.

The factors which expose each of the alternative segments to more or less risk vary, according to a recent study from consultant JLL called “COVID-19: Global Real Estate Implications”.

Co-working: occupation decreases with the increase of remote working

Occupation within co-working centres is directly influenced by the measures imposed by the Governments which mandate remote working whenever possible. According to JLL, «the office use rates drop as remote work increases».

Rents for these spaces are automatically affected and «owners who are exposed to short-term leases are the more vulnerable». «If the members decide to cut the short-term leases» exposure to risk within this segment will be even higher.

On the other hand, operators who apply mid-term leases will be «less exposed» and, consequently, with «much safer» revenues.

Student Housing: closure of Universities impacts rents

The mandatory closure of higher learning establishments along with travelling restrictions is having direct impacts on student housing occupation which thus sees its short-term revenues affected.

The instability of the current situation – which does not yet have an end in sight – will affect the performance and operational results of these units between 2020 and 2021, predicts the study.

Co-Living: flexibility is a «negative risk»

The flexibility inherent to the new ways of living and inhabiting within the cities which find a solution in co-living, is, when faced with the crisis, a «negative risk» for the segment. Short-term leases in the co-living present, «immediate risks for the rents».

And the investors’ strategies may also be affected, if this scenario continues for much longer since it «will undermine additional investment in other assets», one of the key vectors.

Senior living: demand should remain at the same level

Unlike the other segments where demand decreases exponentially due to the pandemic’s effects, senior living should remain as the «most resilient» segment.

But, according to the study, demand does not necessarily mean a net revenue increase, since there will be «more operational costs related to the necessary high protection protocols for the residents».

On the other hand, JLL remarks that this segment maintains «considerable additional risks» due to the age and profile of its occupants. Besides that, investment activity in this segment will be limited in the short-term, since interest for the segment is limited.