Which real estate asset class is the most pandemic proof?

Commercial or Residential?

No one would have been asking this question 3 months ago, but savy investors are now looking at every investment option out there, and assessing if that investment opportunity is well-suited to the “new normal”.

Whether it be Airline stocks, Amazon stocks, or real estate, you should be asking yourself which investment option offers the opportunity for the highest return with the lowest risk in our new reality.

Is residential real estate or commercial real estate more pandemic proof?

Keep in mind that we are still in the very early stages of the Covid-19 pandemic, at least here in Canada, but it would appear that so far Residential real estate has fared much better than it’s commercial counterpart.

People still need a place to live, and the Government has been handing out stimulus cheques in the form of CERB like they are candy. These CERB payments are generally being used to make monthly payments such as rent, even though the BC Government has put a 4-month moratorium on evictions for non-payment of rent. The truth of the matter is that most people don’t want to defer their rent for 4 months and end up owing $10,000 at the end of it all, so are going to pay what they can in this tight BC rental market.

What about commercial real estate?

The jury is still out on how commercial real estate owners will come out of this mess, but so far they have been in a more difficult position. With some degree of forced business closures across Canada, many small business owners simply can’t afford to pay their rent, and many large tenants are negotiating rent deferrals or even rent abatements. The longer that this goes on, the longer this will negatively impact the operations and cash flows of commercial real estate owners.

Another potential issue in the commercial world is that large companies may continue work from home policies even after the pandemic subsides, which would dramatically decrease the demand for office space.

As you can see, so far Residential real estate seems to be the most stable asset class during this pandemic, but keep in mind that we are only 6 weeks in, and a lot can and will change in the next couple years. Stay tuned for more!

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