As the world has become increasingly interconnected, goods, capital, and people have crossed country borders with rising frequency. For real estate, this has gone hand in hand with rising demand for residential space to accommodate workers and students moving to new cities. Businesses expanding their geographic footprint have sought office and logistics space in new locations.
Covid-19 has temporarily halted the trend of an increasingly globalised world and the impact can be seen in global migration flows. Issuances of new visas and permits in OECD countries fell by 46 per cent in the first half of 2020 compared with the same period in 2019 (see chart below). This is the largest drop ever recorded. The OECD expects that 2020 will be a historical low for international migration in the countries it covers.
For the residential sector, migration inflows can lead to higher demand, particularly in the rental market. Data shows the UK prime rental market, which typically has a higher share of international and corporate tenants, was on average comparatively worse hit than the sales market due to the pandemic. In the nine months to September, prime rents in London fell 2.2 per cent, against a 1.0 per cent increase seen in prime prices, for example.
The pandemic has also disrupted plans for many who had planned to move abroad for university. In a survey by QS in September 2020, 69 per cent of respondents stated that Covid-19 had impacted their plans to study abroad.
International students are an important source of demand for purpose-built student accommodation (PBSA) and there are signs this is starting to impact some PBSA providers. In the UK, for example, the Unite Group’s Q3 2020 results showed 88 per cent of beds were let across its portfolio, compared with 98 per cent at the same point last year.
The pandemic has also caused a major shift to remote working. Should the rise in home working remain a long-term trend, the need to relocate for work could be lower going forward.
The trend of increasing globalisation, however, is unlikely to be reversed due to the pandemic. An increasingly online world cannot replicate the experience living, working or studying abroad provides and it is likely to remain appealing in a post-Covid world.
Figures from some markets already show the beginning of a recovery in migration flows. Visa issuances in the UK, for example, shows a slight rebound in Q3 2020 (see chart above). As vaccines begin to be rolled out this bounce back could accelerate. As migration flows recover, those moving abroad will continue to demand residential and commercial space.