- Olivia Eriksen
How has the rising cost of living has affected the real-estate industry?
The impact of inflation on real-estate.
With the world only recently recovering from the financial strain of the Covid-19 pandemic, now there is a new burden for the population to contend with: inflation. This year is seeing the biggest rise in global inflation for decades, with the US sitting at 7.9%, with the UK and other Eurozone countries close behind this figure. As well as drastically impacting the cost of living, inflation is having knock-on effects for many industrial sectors, including the real-estate industry.
RISE IN INFLATION
Inflation is, unfortunately, the result of the economic pressure experienced around the world due to the Covid-19 pandemic. With the population now living almost entirely as normal, the demand for products has shot up, but the supply isn’t in a position to be able to meet this surge.
Take fuel in the UK as an example. It’s currently in huge demand with the largest monthly increase in prices since the 90s, which has worked to drive inflation up. Prices are higher than they’ve been in decades, and people are struggling to afford to fill up their cars and to heat their homes.
And it’s not just individuals who are feeling the pressure, but businesses as well. With customers to keep happy, employees to look after, and supply chains to maintain, companies all over the world are being affected by the rise in inflation, and are having to work fast to counteract (and ultimately minimize) its impact on their organizations.
GREATER EMPHASIS ON RENTING
The steep inflation is having knock-on effects for countless industries, one of which is real-estate. With less money going to savings, the possibility of buying a home is a far-off dream for many, with renting being the more popular option due to necessity.
This is true of businesses as well. Due to the uncertainty of income and financial instability, companies are choosing to rent spaces to work from – be those offices, warehouses, or something else entirely – to minimize the economic burden where they can.
FAVORING DIFFERENT REAL-ESTATE AREAS
As well as renting being typically more favored during this time, different real-estate areas are seeing more interest than usual. This shift in interest is mainly due to cost. Some areas are expensive purely due to their postcode, whereas other regions with a lot to offer come with smaller price tags and more bang for your buck. People are opting to move to these more affordable regions, to get more out of their money and to combat the financial pinch where possible.
Thanks to the rise of e-commerce, companies have less need to occupy so much previously prime high-street real-estate, and can instead rent out smaller units in city centers, while reserving most of their money for the larger, more impactful out-of-town units that support the rest of their business.
DEVELOPERS NEED TO PIVOT
In order to accommodate for the new market demands and needs, real-estate developers need to pivot their business models. They need to look at market trends and identify ways to cater to the shifting requirements – for example, finding ways to safely cut back on costs and produce more affordable property, developing property in newly desirable locations, creating more units for rental rather than purchase, and so on.
Whatever happens with inflation, one thing that is certain is that people need properties for everyday life. Whether it’s a home or a workplace, real-estate is a cornerstone of society, and so as long as the industry can adapt to the circumstances it shouldn’t be hit too hard.
Unfortunately, the only way out of the current cost of living crisis is through it. It’s hard to know exactly how long the period is going to last, and how much more severe it may become. This means that the affected sectors – including real-estate – will need to continuously adapt their business models to accommodate for the changing market demands and capabilities, in order to stay not only profitable, but afloat.
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