Has the pandemic curbed, or even reversed, the centuries-long trend toward urbanization?
A new report from Green Street examines three cities and what they tell us about that question:
“We do expect the majority of workers to adopt a hybrid approach through which they’ll work from home one to four days per week,” said Green Street’s Dave Bragg. “This allows for incremental suburbanization because working from home requires larger dwellings, and the commute in from the suburbs is more tolerable when done less often.”
But that shift and its impact will by no means be monolithic across commercial real estate markets. The future is likely to look much different for property investors in places such as San Francisco, Charlotte, and London.
San Francisco, New York, and other large gateway cities in the United States are likely to feel the biggest impact of post-pandemic deurbanization. There is even a very slight but real chance that a gateway market could suffer a similar fate as Detroit, which has lost two-thirds of its residents and inflation-adjusted assessed property value over the past 70 years, as we wrote recently in Heard on the Beach: Herd Community.
“The two places hit hardest over the past year, New York City and the San Francisco Bay Area, are the most likely suspects. They share low WFH utilization rates, poor fiscal health, and progressive politics. It is unlikely that their future will rhyme with Detroit’s past, but parallels are found.”
Public and private market property investors often reach different answers on big questions, but they are roughly aligned on the extent to which the outlook for Sun Belt versus gateway markets has changed over the past year because of the Covid pandemic. The Sun Belt has been repriced favorably on a relative basis by an order of magnitude in the high single-digit range for apartments and mid-single digits for office. However, our changes to market-level underwriting suggest a greater warranted bifurcation.