Residents are Returning and Multifamily Real Estate Rents are Rising in Big Cities
Early on in the COVID-19 pandemic, New York City was at the epicenter of speculation about the future of big cities in the U.S. A pandemic-driven exodus from New York City to the suburbs and other cities stoked fears about what would become of the Big Apple. An August 2020 blog post by author and entrepreneur James Altucher that declared New York City was “dead forever” went viral. Yet diehard New Yorkers like comedian Jerry Seinfeld thought it was wrong to write the city’s obituary.
Seinfeld and his neighbors were right. Neither New York City nor other major U.S. cities actually faced gloomy long-term prospects. At perhaps a slower pace than they’d like, New York City and its big-city counterparts, such as San Francisco and Los Angeles, are bouncing back. Evidence of the Great Return is everywhere:
- In February 2021, the Harris Poll released results of a survey that found seven of 10 urban dwellers in six of the country’s largest metro areas — New York City, Los Angeles, Chicago, Houston, Phoenix and Philadelphia — were eager to stay where they were. Backing up those results, Bank of America economists noted in April 2021 that they “don’t see evidence of a broad urban exodus.”
- Data indicates that a lot of the folks who left metropolises like New York City and San Francisco wound up settling in nearby communities, suggesting that some of them were telecommuting yet still wanted to be close to big cities.
- In January and February 2021, the population of the five-county New York City area grew by a net 1,900 residents, according to Unacast, a provider of mobility data. This indicated a shift to positive growth once again, as the area lost a net 7,100 residents in January and February 2019, and lost a net 111,000 residents in 2020.
- Big cities around the country have seen the median rent for apartments return to growth. According to apartment website Zumper, New York City saw a 21.6% rise in the median rent for a one-bedroom apartment
This data — and a lot of other information — points to a big-city resurgence across the U.S. Indeed, a February 2021 report from online residential real estate marketplace Zillow says that while suburban homes sold faster than urban homes by the end of 2020, home values, sales volumes and Zillow web traffic in urban areas matched or exceeded the same metrics in suburban areas.
“Despite some early pandemic-era narratives, suburban housing markets did not disproportionately strengthen in 2020 at the expense of urban areas,” the Zillow report concludes.
The Urban Land Institute and professional services firm PwC noted in the 2022 edition of their annual Emerging Trends in Real Estate report that although suburban and rural areas have grown more attractive to some Americans since the outset of the pandemic, gateway markets and downtown areas “will retain their appeal for a great many people… Cities are already snapping back to life as cultural offerings reopen.”
Secondary and Tertiary Markets to See Rise in Single-Family Rental and Built-to-Rent Demand
Despite the rebound of big cities, secondary and tertiary markets are likely to remain strong as older millennials begin forming households and pursue more space, privacy and neighborhoods with a high quality of life. This is a major driver of the single-family rental and build-to-rent asset class.
Still, as some American workers take advantage of remote work and shift from big cities to suburban or even rural markets, large cities might become more livable. This outflow is helping draw young professionals — younger millennials and members of Generation Z — to big cities.
Some of the big cities that are benefiting from this trend are Sun Belt markets like Phoenix, Charlotte, Dallas and Austin. Translation: Many big-city residents simply swapped one urban area for another. Magnets for new arrivals include a relatively lower cost of living, a robust quality of life, thriving job markets and warmer weather. It should come as no surprise that all four of these metro areas landed in the PwC and Urban Land Institute’s ranking of the top 10 commercial real estate markets to watch in 2022.
Was There Ever an Exodus from Big Cities?
Whether best described as the “Great Return” or the “Great Rebound,” the impact of the pandemic on Americans living in big cities may be less consequential than it might have initially appeared.
In April 2021, The New York Times reported that a review of 30 million change-of-address requests to the U.S. Postal Service in 2020 showed migration patterns during the pandemic looked much like migration patterns before the pandemic.
“Some smaller regional metro areas and vacation hubs benefited,” The Times observed. “But in general, areas that were already attracting new residents kept attracting them. Those that were losing migrants lost more. And there are few examples, at least in the data so far, of previously down-and-out regions drawing people in.”
So, for all the angst about the pandemic-era prospects of big cities, the domestic migration trends largely stayed the same during the pandemic. To borrow a phrase frequently attributed to author Mark Twain, reports of the death of the big city are greatly exaggerated.
“The demand for urban living will not disappear; there will still be a sufficient number of millennials, especially well-educated singles, who will choose to remain in their 30s and 40s, and post-millennials, who will prefer to spend their 20s in urban centers,” according to the Joint Center for Housing Studies at Harvard University.
The lights of New York City and other big cities may continue to shine bright for the foreseeable future.