Golf in the Pandemic
In 2020, the pandemic placed many areas of life on hold. Sports leagues like the NBA, the MLB, and the NCAA had their seasons postponed because of Covid-19. Although the pandemic negatively impacted many seasons, one sport stood strong. The great game of golf thrived during this time because of its outdoor setting and the ability to social distance while playing. In 2020, the viewership of the PGA skyrocketed and many new players picked up the game. According to Golf Digest, there were 6.2 million new players in 2020. This resurgence in passion for golf resulted in an exploding demand for homes on golf courses.
Image Source: Magical Vacation Homes
Supply Challenges
Despite the high demand for real estate on the golf course, there is not enough supply to match the demand. This mismatch between supply and demand has been caused by multiple factors:
High interest rates disincentivize homebuilders from taking out construction loans to develop more properties in this economic climate.
Homebuilding was slowed during the pandemic due to supply chain issues restricting developers' access to building materials.
In years prior to the pandemic, a decline in golf led to the closure or abandonment of many golf course communities.
These factors paired with the elevated purchase volume from the demand shock led to an insufficient supply of golf course homes. High demand and low supply means one thing, valuations of golf course homes rose dramatically. This change in valuation was partially caused by the crazy housing price increases during 2021, which have come down slightly from their highs. Although there was a volatile move in home prices, I believe there has been a more permanent change in golf course real estate.
Lasting Demand
The pandemic changed day to day life for many people, and I think its impact on golf will be long lasting. Golf was on a decline before the pandemic because of the high barriers to entry. It is an expensive game and one that is viewed as unfriendly to newcomers. Importantly, this view of golf shifted during the pandemic because of the sheer volume of people that picked up the game. Golf is becoming more informal as it reaches the masses. In addition, younger audiences are starting to play the game. This is relevant to real estate investors because young golfers adopting the sport equates to long term demand for homes on the course. One of the reasons golf course homes were not a particularly attractive investment before the pandemic was because the target tenant was much older and demand would phase out with their generation. This trend has been reversed as young people start to grow with the game, which makes these investments more enticing.
Another factor that will drive long term demand is the shift from working in the office to working from home. Even as the pandemic cools down, working from home is a trend that persists. According to Forbes, “12.7% of full-time employees work from home” with another 28.2% working hybrid. It is estimated that there will be 32.6 million Americans working from home by 2025. This trend has already driven price increases in golf course homes due to upward demand pressure. Having the flexibility to work from home has led many people to place greater value on living in a scenic community. In order to attract high end homebuyers, developers build communities that offer amenities like golf, tennis, fitness centers, and spas. This is a trend that is similar to the struggling office sector with landlords giving more tenant improvements, amenities, and custom work spaces.
Opportunity for Investors
A lasting demand with limited supply presents a chance for developers to create value by delivering high end living experiences in work from home communities. Golf course communities are the perfect place to capitalize on this opportunity because of the availability of abandoned courses left over from the pre pandemic decline in golf. Developers can acquire existing or abandoned courses and build homes that will sell at a premium compared to the single family market. In fact, researchers at Florida Atlantic University concluded that homes on golf courses sell at a 8 to 12 percent premium. This presents an opportunity to be a leader in developing unique communities centered around a golf course that deliver an experience through desirable amenities.
Another opportunity I see within the sector is the chance to differentiate the development through unique home designs. Many communities that are built around golf suffer from the same lack of originality. Developers make cookie cutter designs to save costs on each home. The problem is that this makes for a relatively unattractive optic that detracts from the natural beauty of the golf course. Instead of building every home with the same copy and paste design scheme, unique architecture would make the community stand out. This would allow owners to sell to high end customers at a premium price.
LOCATION
During the pandemic, many Americans migrated to states in the South. This was partially due to the mass exodus from large cities after being able to work from home. Naturally, worker migration to the South lends itself to an increased demand for golf real estate because southern states are a hotbed for golf. This creates even more opportunity for developers to provide luxury living around the course. This also contributes to the larger trend of the remarkable success of real estate in the sunbelt over the past decade.
Interestingly, the explosion of golf is not just an American trend, but an international movement. In particular, countries like Greece and Italy have seen a large uptick in golf fans. Both of these countries have started to build more golf courses in recent years. Multimillion dollar developments like the golf course at Navarino Hills in Pilos Greece characterize luxury living in scenic golf developments. I think that the international expansion of golf course developments speaks to a larger trend towards golf course living that will be here to stay. Ultimately, this trend drives demand and price increases that create opportunity for investment.
Golf Course at Navarino Hills
Image Source: Costa Navarino
A NEW HORIZON
Before the pandemic, golf was a dying industry. Today, golf is thriving and providing stimulus for new developments that will characterize the future. Due to golf’s newly found popularity, I envision these courses being hubs for creation that will provide a host of opportunities. From unique luxury single family homes, to five star resorts, to retail centers within the community, and sustainable electric golf carts for transportation, golf courses could be a gateway for the future of self contained community building.