The commercial real estate industry was quickly disrupted in 2020, with little warning. While some sectors have seen record growth (I’m looking at you, industrial property owners), there has been significant disruption to the retail, office and residential sectors of the industry. Soon after COVID-19 hit the United States and cities went into lockdowns to protect their residents, reports of individuals fleeing the cities for the suburbs began. It started as anecdotal, but by September, the data was in and it supported those reports of urban flight. But with the imminent rollout of a vaccine, will we find that the exodus was temporary?
The Urban Land Institute (ULI) released its annual “Emerging Trends in Real Estate” report in October 2020, and one of the major trends expressed in the report was a residential exodus from denser cities to suburbs and suburban rim communities. Dubbed the “Great American Move,” the report described the upward trend in family home ownership and discussed different markets that were the winners in the urban flight post-pandemic. ULI reported that historically low interest rates were among the factors that resulted in a boom in home ownership during a time when the economy was otherwise experiencing recession-like qualities.
“Despite the negative impact of COVID-19 on the economy, the housing market experienced a V-shaped recovery primarily due to historically low interest rates, the importance and value placed on ‘home’ reinforced by the pandemic, and strong housing market conditions pre-COVID, which led to pent-up demand for homes.” Areas around Austin, Phoenix, Salt Lake City, Tampa, Charlotte, Denver, Dallas, Nashville, Portland and Seattle saw increased population and movement, while cities like New York City and Los Angeles were losing residents.
The trends discussed in the ULI report were further confirmed in an Oct. 20, 2020 Reuters article, which shared that in September 2020, homebuilding reached a 13-year high and building permits and housing completions were at levels last seen in 2007, before the housing bubble burst. Year-over-year statistics showed an 11.1% increase in homebuilding, with a 23.3% increase in single-family building.
While the trends showed movement out of the city and increases in family home building, not all movement out of the cities was to family homes. Multifamily developers were pivoting to the suburbs as well. The New York Times reported in September that New Yorkers who were moving out of the city were not heading to a typical suburban life. “[M]any urbanites have opted to rent in newly developed apartment buildings or to buy condominiums in denser, walkable suburban communities, where apartments tend to be bigger and offer more outdoor space than comparable units in the city.” Those leaving the city were looking for spaces where they could work remotely, children could attend remote school and they could have enough space to maintain sufficient social distancing, a difficult task in dense New York City. As a result, suburban New Jersey, Long Island, and Westchester and Rockland Counties in New York all saw increased interest from New Yorkers.
So, does this exit spell the end for dense urban areas?
Not so fast… with the imminent rollout of the COVID-19 vaccine, we may find that the exodus from the cities was only temporary. The Wall Street Journal (WSJ) reports that as vaccination becomes more widespread, the rationale for city dwellers to move to the suburbs will be altered. For instance, if schools return to in-person instruction, the need to set up space for virtual learning will be diminished. WSJ also reports that the pandemic may have forced some families to accelerate moves out of the city that would have typically occurred anyway, but over a longer study period. As a result, this trend will begin to self-correct over the next housing cycle, and the move numbers will not be sustained.
Further supporting the idea that the exit may be temporary, the ULI report also shared that “the COVID-induced pause in [cities’] appeal is not likely to be permanent.” In fact, almost all of those interviewed for the ULI report believed that the gateway markets of Boston, Los Angeles, New York City, San Francisco and Washington will regain their broad appeal and vivacity due to their dominance in entertainment, finance, technology and education. Moreover, as discussed in an Oct. 15, 2020 Globe Street article, Generation Z demographic will likely follow historic trends and favor the urban metros due to their culture, walkability, public transit and opportunity.
While COVID-19 has done so much to disrupt the commercial real estate industry in 2020, including significant changes to the residential landscape in denser urban areas, there is support for the suggestion that the exodus to the suburbs may be reversed in the coming cycle.
Jennifer Mazawey is a partner at Genova Burns’ Newark, New Jersey office. Mazawey practices in the areas of commercial real estate, land use and construction law. She is an active member of CREW NJ, serving as chapter president in 2018.
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