Big Cities Are Losing Luster To Suburbs, Secondary Markets, ULI/PwC Emerging Trends Report Finds
Residents and companies moving from big cities to secondary markets and suburbs is likely to be one of the biggest trends to come out of the pandemic, according to a new report from the Urban Land Institute.
ULI and PwC Wednesday released the annual Emerging Trends in Real Estate report, one of the industry's most highly anticipated publications, and the first three of the 10 trends focused on the shift away from big cities.
The report's findings drew from interviews with over 550 industry participants and over 1,600 responses to an online survey. The report uses the responses to highlight 10 trends in the market, rank U.S. cities by real estate prospects and evaluate each of the property types.
The first trend the report focused on was the movement to remote work that companies have made during the coronavirus pandemic. The report said many companies don't plan to reopen their offices until at least early 2021, and 95% of the respondents said they expect more companies in the future will continue to let employees work remotely.
The impacts of this shift to remote work are expected to be more favorable for suburban office markets than central business districts, the report said.
“Some companies may move from a consolidated model to a hub-and-spoke system with satellite offices in suburban areas,” the report said. “In larger metropolitan areas, transit-oriented suburban nodes that are also accessible by car may have more appeal.”
The report’s second emerging trend focused on residents moving from cities to suburban areas, particularly in single-family housing.
This shift was already beginning to take place because of demographic trends, the report said, as the millennial generation is larger than Generation Z and is reaching the age when people tend to move from the city to the suburbs.
The report cites projections from John Burns Real Estate Consulting that the population between ages 30 and 49 will grow by 8.4 million over the next decade, while the population between ages 20 and 29 will shrink by about 400,000.
Clarion Partners Managing Director Onay Payne, speaking on the ULI Fall Meeting panel that introduced the report, said her firm's research shows the shift to the suburbs was taking place before the pandemic.
"Millennials are getting older, they are child-bearing age, they want to live beyond 600 SF in the city," Payne said. "When you find suburbs that are walkable, higher level of amenities, transit-oriented ... that is going to have increasing levels of appeal from an affordability standpoint and a demographic standpoint."
While demographic trends are causing a gradual shift to the suburbs, the pandemic has accelerated this trend, the report said. Remote work has reduced the need to live near offices, the entertainment aspects of living downtown have been reduced during the pandemic, and the suburbs can offer more space at a cheaper cost.
PwC Director of Real Estate Research Andy Warren said this is also causing a shift from the largest U.S. cities to secondary markets where rents are relatively affordable.
"We’ve seen a spike of people moving to the suburbs," Warren said. "We’ve seen a spike of people moving to secondary cities brought about by the flexibility of work from home. If I can work from anywhere, I’m going to live in a less expensive city."
The third emerging trend in the report also focused on the shift to the suburbs, but from the perspective of how cities can reinvent themselves to mitigate the exodus.
The report highlighted ways cities have responded to the pandemic by allocating sidewalk and street space for outdoor dining, expanding pedestrian paths and bikeways, and reimagining other public spaces.
"While demographics and COVID-generated new habits may tilt in favor of suburban markets over the next decade, cities are not likely to stand still as their tax bases erode," the report said.
The report's ranking of U.S. markets by real estate prospects also highlighted the relative strength of suburban areas and secondary cities compared to major gateway markets.
The top five markets, in order, were Raleigh/Durham, Austin, Nashville, Dallas and Charlotte, showing the strength of secondary markets that are more affordable than the largest U.S. cities.
Northern Virginia, a suburban market outside D.C., jumped from No. 14 last year to No. 7 in this year's report. Long Island jumped from No. 57 in last year's report to No. 10 in this year's report.
"As you can see from our top 10 markets in the survey, a lot of them are those markets that are more affordable with an attractive quality of life," Warren said. "Others show a suburban bent. The Northern Virginia suburbs, we have a dynamic company moving there, and people are looking at, 'Do I want to get out of the city? I can go to the suburbs.'"
The 117-page report highlighted a host of trends beyond the shift to the suburbs. It looked at the transformation of the retail market and the growth of the logistics sector, both trends accelerated by the pandemic.
It also discussed the increased focus on building safety brought about by the health crisis. And it looked at the nation's larger economic and fiscal challenges, the housing affordability crisis and the racial equality movement.