The Sotheby’s Luxury Real Estate Outlook 2021 takes the pulse of global residential real estate after one of the most tumultuous years in modern history. As we face a period of economic recovery from the Covid-19 pandemic, we explore how many of the world’s prime housing markets will fare and what trends will shape them in the next year and beyond.
Global Outlook and Pandemic Trends
The housing market has been an undeniable and unexpected stronghold of economic strength in a year of unprecedented uncertainty. As we look ahead, the recent boom in luxury home sales offers a reason for optimism. In fact, a solid majority of Sotheby’s International Realty agents surveyed as part of the Sotheby’s Luxury Real Estate Outlook 2021 report hold an optimistic view of their respective housing markets in the near term.
The pandemic sparked a near-global reassessment of lifestyle and economic positioning that played out in housing markets in dramatic fashion – here are some trends highlighted in the Sotheby’s Luxury Real Estate Outlook 2021 report:
- City dwellers are migrating to suburban towns. Baby boomers are retiring to sunnier locales, while remote work has allowed millennials to ascend the housing ladder in smaller, more affordable cities.
- The affluent have invested in second or third homes and larger compounds to welcome back adult children – or conversely, have sought investment opportunities in high-cost financial capitals where deals were suddenly available.
- People who had only ever considered condos were drawn to the autonomy and privacy of townhomes, and amenities once considered niche became must-haves.
- Even in urban areas, general tastes will continue to gravitate toward larger, quarantine-friendly homes. Buyers have turned their sights to Zoom rooms, gourmet kitchens, gyms, pools and other recreational comforts. For both amenities and the physical size of properties, bigger will continue to be better.
Where Luxury Buyers Are Based
Nations that recorded the highest number of ultra-high-net-worth individuals were the U.S., China, Germany, India, France, and the U.K. For the real estate industry, this means the bulk of buyers in the market for trophy homes will still come predominately from the U.S. and China. These pandemic buyers have trended toward sprawling compound-type properties in suburban and resort markets, in the case of U.S. consumers, and diversified investment properties across global cities, in the case of Chinese buyers. Nearly 70% of respondents for the Sotheby’s Luxury Real Estate Outlook 2021 report expected demand from foreign buyers in their markets to either stay the same or increase in 2021.
The Future of Big Cities
Unquestionably, 2020 was the year for spacious properties that offered an escape from claustrophobic apartments in locked-down cities. However, as the Covid-19 virus becomes better controlled around the world, people will be keen to live in major cities again and take advantage of the convenience and energy associated with living there. Activity has picked up in some segments, an event most notably seen in increased demand for townhomes, which offer privacy and coveted outdoor space.
Opportunities in the Condo Market
No one could have predicted that a pandemic would curb demand in the condo market so suddenly, creating the perfect storm of available inventory and softening prices. However, rising prices in the house market and the depletion of inventory, mean savvy buyers will likely continue to strike deals for condos in big cities, particularly for high-end, larger units. Smaller units will probably struggle to sell, and developers may readjust plans for studios and one bedrooms in favour of more spacious offerings. Overall, many experts interviewed for the Sotheby’s Luxury Real Estate Outlook 2021 report believed that prices could rise quickly for high-end condos in their markets.
Suburbs Will Enter a Period of Change
The first half of 2021 was strong for areas within commuting distance of major financial centers with significant increases in sales and prices. How major suburbs perform in the longer term will depend on whether relocated families remain in the suburbs or whether increased vaccinations and reopening mean a return to global cities. Some portion of the new suburbanites may opt to keep an urban pied-a-terre. Another factor is how quickly companies expect employees to come back to the office, if at all.
Property and Wealth Taxes
As they face budget gaps from the costs of the pandemic and lost revenue from lockdowns, governments are revisiting property and wealth taxes which could have real consequences for how and where wealthy individuals buy homes.
Greener Homes are the Future
The pandemic has made quality of life top-of-mind for many, with a greater appreciation for the impact the natural environment can have on our well-being. Sustainability is likewise emerging as a prime consideration in luxury real estate, with buyers looking to integrate greener living in their homes and lifestyles. Developers are more focused on locally sourced materials, geothermal systems, solar panels, green roofs and charging stations for vehicles, and environmental certifications for energy and water efficiency and air quality.
The Millennial Factor
Millennials are reaching the age of home buying and starting families. Highly educated, technologically astute, socially and environmentally aware, millennials already account for more than one-third of luxury good sales. Sustainability and green design are important to these buyers, as well as a focus on how a home will enhance their individual lifestyles. Buyers in this age group also prefer move-in ready homes that won’t require lengthy renovation times.