Rising inflation, growing interest rates, stagflation, stock market volatility…these terms are on everyone's lips. But how is it likely to affect business?
What does a recession mean for the housing market and real estate in general? Businesses are afraid of a recession, but a recession is not unusual! It is an integral part of the business cycle and, therefore, completely normal. This material clarifies what a recession means for real estate and how to overcome these challenges.
Recessions Affect All Industries
Some analysts are putting the probability of a global recession as high as 98.1% (Forbes)
A recession is a state of the economy when business activity declines, consumer spending decreases, businesses go bankrupt, and unemployment rises at the same time.
It is impossible to avoid recessions. During the growth phase, many long-term problems arise in the economy: high debt levels, financial bubbles, trade wars, non-optimized government spending, and underfinancing of sectors.
During recession, real estate experiences challenging times. We cannot predict the shock that will cause a recession, but we can prepare our business for the challenges it will create.
Real Estate Experiences Higher Rent Costs During Recessions
An economic crisis affects two parties in the real estate market - supply and demand.
Supply is not severely affected during a recession. It often increases since a real estate sale is intended to remedy liquidity bottlenecks. Few withdraw existing offers for fear of poor sales results. These properties may also secure rental income that should not be lost during the recession. However, demand is more affected.
- Fewer people are interested in buying
Because rising living costs and a rising unemployment rate mean fewer people can afford to buy real estate. As soon as there is a drop in demand, prices in the housing market in a recession will also inevitably fall. However, this only occurs when supply exceeds demand. As long as there are more prospective buyers than objects on the market, the real estate market for sellers will remain stable.
A decline in economic strength means that many consumers are becoming cautious. They rely on postponing major financial decisions in particular.
- Developers slow down construction
Of course, the recession isn’t the high time to start new construction projects. Developers try to carry out their liabilities on the existing projects or even stop all the construction processes.
However, people still have to live somewhere. They are looking for rental opportunities and increasing the rent prices.
- More families make foreclosure
The last Great Recession made companies fire every fifth person. These people had to find new less-qualified jobs and lost 18% of their earnings on average. In this period, many households resorted to foreclosures. With foreclosure in the credit history, it’s almost impossible to buy a house, so many people tend to rent.
- Many companies return to their offices
It’s not the issue of recession but the trend of modern business. If 2020 and 2021 were the years of working from home, 2022 was the year of freedom to choose where to work, then 2023 would be the year of hybrid work. This year, companies will do almost everything to bring employees back to the office for at least a few days a week. Socialization, better concentration, and the possibility of faster collaboration with employees drive this decision. So commercial property owners also return to fierce competition for their customers.
Secure your business from uncertainty with best-fit technology!
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How Not To Lose Tenants if Your Rents Exceed the Market Rate?
Recession is not synonymous with the apocalypse. Economists consider it only part of a cycle: the economy grows, reaches a peak, falls, pushes back from the bottom, and begins to grow even more.
Thus, if you want to tackle the challenges successfully and become a winner during the renaissance period, take care of it in advance.
- Allocate resources strategically
Try to cover all the operational costs that occur during the crisis period but keep a larger share of funds for the strategic investments that will bring you long-term benefits.
Think about trade-offs you can make to ensure better cost management and budgeting.
Accelerate the transition to the cloud digitizing critical business needs. This will potentially eliminate the negative effects of rising energy costs and ensure the flexible nature of your organization.
Streamline work processes to make them more quick, efficient, and agile.
- Focus on the steps with the largest impact on high-value business outcomes
An economic boom will inevitably follow the recession. In the long term, this will again drive up real estate prices. In short, it can be assumed that the real estate market will continue to harden in the future, and prices will continue to rise. Therefore, shifting purchase intent could result in higher costs for objects of any type. It should also be noted that interest rate policy could deteriorate in the future. A rising interest rate will lead to more expensive home loans, which in turn will drive up the overall cost of the properties.
- Boost key digital and technology initiatives
For companies in the real estate industry, the topic of digitization has not only been on the radar since Corona. Last but not least, the changes in the market due to the digital lead of other market participants and the emergence of new PropTechs ensure that digital processes and solutions now have to be introduced even faster.
Digitalize your business with so-called PropTech solutions. This will give you optimized business processes, more efficient solutions for management or completely new business models, and a good competitive advantage.
The most important technologies for the future of the real estate industry are the Internet of Things, blockchain, virtual reality, and cloud. These technologies will particularly influence the usage behavior of investors, as smartphones and tablets are increasingly being used as a medium for researching and comparing services are used.
Property owners and real estate managers benefit from the automation of their processes, boost customer management and corporate development, and save time and money.
Tech Solutions You Need During Economic Uncertainty
For any business dealing with customer service, a recession could be an ideal opportunity to invest in proper software to deal with basic customer queries. PropTech offers digital solutions in various branches of the real estate industry - from Smart Home to digital brokerage to the visualization of real estate.
Property management systems (PMS)
PMS supports real estate, hotels, resorts, and similar properties in their day-to-day operations.
This typically includes management and administrative tasks, such as payment processing, tenant billing, tax accounting, and performance analysis.
This system can assist you in attracting, screening, and administering renters, controlling and meeting their maintenance needs, and conducting an account for all relevant costs and revenue. In addition, the PMS can include various invoice templates by providing the ability to customize the presented style and information, vast options for built-in analytics, and payment automation methods.
Read our material - How to increase a company's NOI with a property management system?
Lease Management Software
Lease management software eliminates the complexities while managing your real estate leases.
The software enables property managers and realtors to track lease data, automate renewals, manage additional applications, and store financial and legal documents while managing leased assets.
Tenant experience app
Tenant engagement apps are handy software to create an effective coworking environment between companies and tenants. This is a central hub for tenants, landlords, and real estate developers. The tenant experience app is like a remote control that tenants can use in their space. Such an application acts as a single administrative console for its owners, where they can manage the experience of their employees or residents. Tenants can easily access local and digital resources such as parking reservations, visitor management, resource booking, etc.
Maneuvering through an economic crisis requires maximum flexibility and adaptability from companies. If you are well prepared and quickly take the proper steps in an emergency, you can even emerge stronger from the doldrums.
Investments in software make companies more agile and better able to cope with uncertainty and rapid change during a recession. Flexibility has usually been associated with high costs. Today, on the other hand, digital technologies allow much more flexibility with product changes, demand changes, and customer experience. If you are ready to build changes, contact Axon software engineers today!