economic impact

Equity Effects of COVID-19 on Different Sectors of Real Estate

Vanessa Dingillo

Jul 8, 2020

Before COVID-19, the housing market in the US was extremely competitive. In most cities, supply was low with a record-high demand. Factors that contributed to this high demand were low unemployment, solid wage growth, low inventory, and low mortgage rates.

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Since the pandemic started, unemployment has skyrocketed. The COVID-19 shutdown sparked more than 36 million Americans to file for unemployment. As a result, there has been delayed rent and mortgage payments across the country. The federal government provided assistance by pausing foreclosures and increases services for forbearance and reduced payments on mortgages backed by federal housing organizations.

Zillow, the online real estate database company, researched how they predict the pandemic will affect the real estate world. From past pandemics, the housing market was put on pause and the remainder of the houses will be sold, without more houses being put on the market. Zillow estimated that web traffic and news listings during the COVID-19 pandemic has dropped 40% for homes and 70% for other real estate sectors. However, the real estate market remains to be extremely competitive for some sectors, while stalling for others.

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Different Effects on Property Sectors

The effects of COVID-19 on the value of properties are likely to vary across the real estate spectrum. Commercial, retail, and hospitality properties are being the hit the hardest while residential and industrial properties appear to be largely spared — at least for the time being.


Retail will be hit the hardest because most retail stores have been unable to profit during the state shutdowns. As a result, many companies have claimed bankruptcy from their minimal revenues. CBRE and Forbes claim it will take retail a minimum of three years to recover. Forbes notes that COVID-19 will have unforeseeable consequences on retail and entertainment in the long run, especially with social distancing put in place. As society changes with the virus, the industries could evolve. The typical store, mall or ‘big box’ building may not be as valuable as it was before.

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The hospitality sectors, such as hotels, have received minimum revenue since the shutdown due to the stay-at-home orders across the country. The recovery period will take time, especially since most hotels do not break even unless they have more than 70% occupancy. This year, US hotel occupancy decreased by 43.2% since last year. For the time being, most hotels will suffer from the shutdown from major lack of revenue from tourists and business travelers.

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Residential properties will recover rather quickly due to constant necessity. While homeowners ready to list their properties may experience trouble due to economic uncertainty, home buying has continued throughout the shutdown with virtual tours and listings taking the place of in-person showings and open houses. While there have not been as many listings for properties as before, properties still are retaining their equity. In the long term, other sectors like nursing homes and assisted living facilities may be affected from people who retired or who planned on selling their properties to move into assisted living.

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One challenge that apartment owners may face is excessive vacancy. According to Forbes, Class B properties will fare better than the rest because investments in expensive properties are less likely to happen and those who would live in Class C developments are more likely to move and double up with others. Many people who normally would live in an apartment may decide to move in with others due to an uncertain future. However, once the economy rebounds and starts to move again, the vacancies should recover.

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Industrial properties should fare the best during this current crisis: manufacturing and distribution, logistics, flex, and light. Even throughout the shutdown, consumers have continued to purchase products online, allowing for industrial-type properties to continue to remain operational. In the long term, even if companies move mostly online, consumers will continue to purchase products and warehouses will continue to be needed.

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For offices and industrial properties that resemble offices, it will take a little longer to adjust due to the lack of employees going into work and looking to move. Because most work has moved online, the demand after the shutdown ends may not be as high as before. Office spaces that are individual units free from common areas will most likely have the highest demand, due to lack of the potential for contamination. Another factor to consider: if the shutdown extends into a recession and unemployment surges, the demand for office spaces will certainly be altered.

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What we are most likely to witness

1) A redistribution of burden across different property types.

As a result of the various effects across different real estate segments, value may shift for different types of properties. A reduction in value does not directly translate to a reduction in taxes. While value will be redistributed from one property type to another, taxes likely will not decrease.

Redistribution among sectors can be explained as such: If there are a total of 3 houses in an area and each is valued at $1, then they all have equal value. There is a total of $9 of value available for the area. If one of the houses raises in value to $3, then the other houses will not be lowered in property value but will remain the same or have their value raised as well.

After COVID-19, redistribution in the US will be uneven among sectors. There will be a shift from property value from commercial to residential. The demand for commercial property will decrease as retail and other hospitality sectors continue to be shut down or file for bankruptcy. Because there are more residential properties than commercial properties, redistribution will be less among the homeowners than what it would be if put on commercial owners.

2) Possible increase in the tax levy (to provide for health care services and to supplement lost sales tax revenue)

In Chicago and many other cities across the country receive the majority of their revenue that they use for city services from property taxes. Chicago’s Assessor Kaegi plans on reevaluating all 1.8 million parcels again in 2020. In doing so, taxpayers should not expect lower values for their properties due to the city’s revenue requirements. With the effects that the COVID-19 pandemic brought to the city, the assessor’s office is trying to account for the decline in property values while raising the taxes to increase the city’s revenue. The huge task at hand will increase the risk for inaccuracy due to the enormous amount of properties to be reassessed during a time of state shutdown. While Chicago’s residential market is among one of the more stable cities, paying attention to the accuracy of one’s property taxes will remain critical, with property tax appeals representing one of the most important ways to prevent overpaying property taxes.

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3) Effects of non-payment of real estate taxes by those unemployed or furloughed

While many cities and states are trying to work with their property owners to delay payments for property taxes, many come to wonder what will occur if they miss their payments. If you are a property owner and fall behind on property taxes, there is a strong possibility of losing your property. The county collector could start a lawsuit on the owner and the amount overdue then becomes an unpaid tax lien. The taxing authority then could sell the property as a way to collect the delinquent taxes. With the COVID-19 effects and the possibility of an economic recession, the ability to pay property taxes will become an increasingly relevant issue for many property owners.

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4) Slow mortgage lending company regain

The consequences of COVID-19 likely will affect the mortgage companies and their prices. Since the shutdown, many people have not been able to pay their mortgages and the federal and state governments have allowed their payments to be postponed. The lack of payments to mortgage companies will be a part of the results to consider for the economy. Unlike the 2008 crisis, though, the real estate market is not intertwined as much as it was before with the stock market.

According to Bloomberg economists, mortgage demand appears to be recovering from the shutdown. Mortgage applications for home purchases have returned back to levels before the shutdown. This is significant because of the timing in the housing purchase cycle. In the normal housing market, most houses are sold by August. The timing that the shutdown stopped brings hope to the real estate market because there is still time to buy/sell the rest of the houses on the market before the general buying market is over.

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5) Possible stock market and real estate market effects

While the stock market and the real estate market are independent, there are indirect effects that the economy has on the real estate market.

  • Interest rates and lending
  • Consumer attitudes
  • Buyers’ markets

The direct relationship between the housing market and the stock market are lines of credit and loaning associated with it, whether that be mortgages or investment loans. When there is high economic volatility that usually occurs during a recession, banks and loaners raise interest rates due to uncertainty on borrowers’ ability to pay back. This concept adds to consumer sentiment during times of volatility and low indexes. How a consumer feels towards the market determines how they will react. When the economy is heading towards a recession and/or has high volatility, consumers begin to feel pessimistic and scared to invest their money in the stock market. As the stock market declines, consumers begin to feel even more nervous about making large purchases, especially in real estate. People hold onto their money because of the uncertainty of the future. This will likely happen after COVID-19 shutdown ends, in that many people are uncertain about the economic situation of the country. However, when the stock market decreases, banks anticipate consumers’ attitudes towards spending money and commonly lower their policies to continue to purchase real estate. This is where the separation from the stock market and real estate proves beneficial because while they are connected in many aspects when the stock market declines, banks rely on other investors in the real estate market to continue money flow as a way to protect the economy.

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Here are the events we need to watch

New city budgets (including plans on property taxes)


Last year, the total assessed value of all commercial and industrial properties rose 74.4% versus 15.6% for residential. Now, commercial property values are lowering from the shutdown. 75% of properties in Chicago are residential so the levy will shift to increase value and tax residential properties as the commercial values lower. Mayor Lightfoot clearly said that raising property taxes will be the last option, along with furloughs and layoffs.

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This year’s assessments increased property value tremendously. Policymakers are arguing to keep 2019 assessments in place due to the effects of COVID-19, in fear that many will not be able to pay their property taxes. As of 2004, the city has a mandatory property tax cap on revenue growth that will prevent drastic increases to property owners during this time. Mayor Turner is having trouble balancing the budget and will most likely result in taxes on the citizens in one way or another.

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Due to Nashville’s struggle to make up for tax revenue lost to COVID-19, Mayor Cooper is increasing property taxes by 31.7%. With the inability to balance the budget without raising taxes, the property owners in this city will feel extreme tax pressure. A proposed 2021 budget is being worked on, including the property tax increase that will be used to avoid city layoffs and pay cuts.

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Reduced rental payments by tenants

Since the pandemic started, nearly one-third of apartment renters could not pay their rent during April due to massive unemployment among renting tenants. With negotiations and rent strikes breaking out across the country, many tenants are preparing reduced rental payments and rental specials for their tenants to secure payment deliverance.

Stable markets (residential, industrial)

Residential and industrial markets are proving to be stable during this health scare and shutdown. With equity still viable in homes across the country, people have found ways to buy and sell virtually. Industrial markets have cruised along as well as consumers who continue to buy online and ship their products to their homes. The stability of these two base sectors in the real estate market will provide basic flexibility for the other sectors to fluctuate for a while without bringing the entire market down. The hope is for our society to continue to evolve with the virus so that the market maintains its equity, without dropping down for property owners to lose their value and their selling power.

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What you can do to help plan for your appeal

With expectations of having the same or higher property taxes, one should prepare for a property tax hike by consulting a property tax specialist. At Siegel & Callahan, we have been working with property taxes for years. With professionals across all sectors like commercial, industrial, shopping centers, multi-family, residential, affordable housing, and incentive class, we can lead you to appeal your taxes and save money.

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