Some people predicting RE in metropolitan areas is going to get creamed over the next few years as companies deal with the fallout from covid and the work from home concept. I don't buy it. Some firms will retreat but i think many people want an urban experience and people will eventually flock to big cities again sooner than later. Cities go through cycles and this is just a major disruption but I don't believe for a second that this is going to kill major cities. There will be some pull back and maybe 2019 was the top for most markets but don't see it getting killed and prob back to par within 5 years.
Anyone have any thoughts on the subject?
too early to predict
I think it’s silly to believe people will suddenly flock to leave cities, that being said the exodus of people from expensive coastal cities to the South/Midwest is likely to intensify (just like it did after 2008) as more people find themselves in dire financial conditions and layoffs intensify. So cities in certain regions and types of CRE would stand to gain from others’ losses obviously.
One of the biggest reasons people have moved into cities in the past 50/100 years is because of employment. Depending on your type of work, I think its likely that remote work becomes more integrated into employers' organizations. That doesn't mean that NYC's population will halve, but if people can get NYC wages and work from home, I can see folks deciding its worth it to leave
No employer will pay NYC wages to remote workers.. There will be people still willing and wanting to come into the office due to the nature of their work. I'm not buying the permanent WFH play yet, unless it's due to necessity (read: having a raging pandemic going on)
Why wouldn't they pay for talent?
In the office Monday to Wednesday House in the burbs Thursday to Sunday
Fair that wages might not be flat, but even with a slight decline + working from home, I think folks will take that trade
Every time I hear someone predicting the downfall of density I kind of laugh because the person making the claim is always 40+. Sure, in their position there’s no reason to not live in the ‘burbs, but chances are they are already living there. In my opinion, making these claims is out of touch with the target demographic of these areas. At the end of the day though, those 40+ people are the ones making investment decisions so it will be interesting to see who makes that bet. My money is on young people continuing to want an active social life/dense urban area. Hell, every one night stand you risk catching something arguably worse than COVID lol
Young folks have been leaving New York at faster rates even before the pandemic. An increased emphasis on remote work will only increase this velocity, but even still it is probably a 7-10 year timeline before there is a major impact.
That said, there is sort of a base level that cities will always remain just given there will always be people who want to live in cities for a period of their lives.
I’ll take the opposite side of that bet. No one can predict the timing exactly, and major cities may rebound for a while before declining. But I would bet that the overall trend during our careers will be down.
Cities do go through cycles, but the cycles are long: much longer than typical economic cycles. There was a huge influx into big American cities between maybe 1890 and 1950, an outflux to the suburbs between 1950 and maybe 1990, and a new influx between 1990 and 2020. We’re getting due for a reversal.
In the earliest transition, the push was the decline of family farms due to mechanized agriculture, and the pull was factory work in northern industrial cities (like in Pittsburgh steel mills and Detroit car factories).
In the later suburbanization, one of the pushes was the decline of those urban factory jobs due to containerization and outsourcing. Another was the crime wave that swept over American cities between the 1960s and the 1980s, following criminal justice reforms in the 1960s. The suburbs pulled people out for lower crime, better schools, and jobs. And the new interstate highway system made commuting easy.
The most recent re-urbanization period started with Giuliani’s crackdown on crime in the early 90’s NYC and similar policies across the country. The brutal commutes that resulted from built-out suburbs made city living more desirable. People just got tired of the suburbs and wanted city life. And city life was actually affordable, due to the long decline that lowered rents.
And now…a lot of the trends that drove the recent re-urbanization are reversing. Crime is trending up for the same reason that it did in the 60s- criminal justice reform. San Francisco looks like garbage, and DeBlasio is working to make NYC catch up. Commuting will become less of an issue with partial remote work (and, eventually, driverless cars). And brutal real estate costs are pricing people out.
Back to the future. Younger people have always liked to socialize, but that didn’t prevent the previous suburbanization, and it won’t prevent the next one either.
I agree with you on the cycles argument, however I think we're farther away from a reversal than you're saying we are. When you consider the current uptick in crime, we have a LONG way to go to get to levels seen back in the 60s, 80s, and especially the uber-violent power vacuum in most cities in the early 90s resulting from the organized crime leadership round-up.
Your point about SF and other cities experiencing a drastic drop in quality of life and huge COL expenses certainly makes cities less attractive, but keep in mind that those quality of life issues and rising rents are a direct symptom of sky-high demand, not waning popularity. Suburbs are still a net exporter of young graduates to urban areas, and I find it hard to see that changing soon without some far bigger forces than the trends we're seeing now. Sure, this pandemic will change things in the future, but I suspect the average attention span of the typical American will make those changes in attitude a short term phenomenon rather than a long term exodus.
I would argue that this is confusing cause and effect. The suburban craze was initiated because postwar GIs had tons of government sponsored opportunities for homeownership, and more importantly, widespread access to automobiles which made commuting, and also living miles from town centers, a real possibility. I'm sure there are some sociological aspects ot getting through the depression and then WWII as well. All of these were massive incentives to leave cities, and also strained city budgets and led to the breakdown of older urban communities, which causes crime.
The whole "Guiliani cleaned up NYC" thing is being pretty roundly debunked. First off, the entire "no broken windows" policy where smaller crimes were cracked down on, really began in earnest under Dinkins, helped along by the fact that he talked Albany into providing the money to hire something like 6,000 more cops. Bill Bratton only got the job at One Police Plaza under Giuliani because Dinkins had hired him earlier to run (very successfully) the MTA police.
Overall, you need something more than "cyclical nature of urban living" as a justification for why urban areas will decline in the future. We've had one period of urban decay, which lasted about twenty years, against centuries of urban agglomeration. One of those things is a historical aberration, the other is not.
I also think a lot of the talk about how sun belt cities will continue to grow at the expense of the older urban areas in the Northeast ignore a lot of other factors. What happens when taxes inevitably start to go up? What happens when the cost of water begins to skyrocket because over overpumping of the only regional aquifers, leaving the entire area a desert? Lots of factors might slow or reverse the trent of sun belt cities growing
RE urban agglomeration, I agree that major metropolitan areas will continue to draw people and that dying farm towns in rural Kansas will keep declining. But the urban vs. suburban question involves the distribution of people within the metro area. That can shift one way or the other while the overall agglomeration trend continues. And there have been earlier shifts, like the growth of "streetcar suburbs" in the late nineteenth century.
RE crime, these trends are obviously complex and involve feedback loops, but it is absolutely the case that large numbers of people left cities because of the crime that was already rising.
Confusing cause and effect...? The mass urban exodus caused by the uptick in crime occurred literally decades after the GI bill and post WWII suburb boost. Urban population stopped growing after WWII, but remained mostly stable until just before the 70's. Then it plummeted. Sure, you could say economic factors contributed to this crime, but saying they were the biggest factor is completely ignoring one of the most significant periods in our country's history, the civil rights movement and numerous murders of prominent black leaders. The racial tension that came to a head in America's urban landscapes during this time drove violence and unrest through the roof and thousands of families out into the suburbs. The GI bill may have ebbed the flow of rural families into cities, but it did not drive urban families out of them to the degree we're talking about here.
I think my crime increase prediction has a few more data points to support it than it did two weeks ago..."abolish the police" is not exactly music to the ears of urban retailers, or residents.
I'm bullish on cities long-term for reasons other folks have stated ad nauseam. The agglomeration of people and networks has been pushing human innovation forward for centuries, and I don't see that stopping anytime soon.
On the multifamily side, I think almost all cities will be back to pre-COVID rent levels in five years. The US, broadly, was back to it's pre-GFC rents in ~3 years, and many major metros were back faster than that (notable exceptions were Atlanta, LA, Tampa, and Orlando which all roared back after 4-5 years).
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