The pandemic’s confusing yet somewhat understandable impact on the real estate sector. Even though the pandemic has spared no state or city, its impact on US property markets and sectors now diverges in ways significantly different than in the last recovery, or in any recovery for that matter. That divergence means that some sectors, like industrial properties, have barely paused because a surge in online spending spurred tenant demand. The same is true for multifamily properties, with tenant demand still increasing and rents back to record levels throughout much of the country. Despite this surge, the pandemic accelerated the retail property sector’s long slide, with store closings, bankruptcies and retail space vacancies rising. The only exceptions are grocery-anchored centers, dollar stores and home improvement retailers, all of which seem to be thriving. Thriving due to a majority of people choosing to eat out at restaurants less, spend more time at home, cook at home and taking this opportunity to improve their home surroundings. The office sector is, unsurprisingly, in the midst of a major reset—with vastly different outcomes based on the city, location of the building and whether a building has flexible open floor layouts, updated HVAC ventilation systems and updated interior designs . Even so, vacancies are likely to keep rising. Vacation travel seems to be recovering, air travel is rising, and hotels within an easy drive of population centers are appearing set to reap some of the greatest benefits. But business and international travel may not return to pre-COVID-19 levels for a while or maybe years. That would take a toll on hotels, luxury retailing and upscale dining that’s often fueled by company expense accounts. The pandemic magnified an ongoing shift away from expensive downtown markets and toward smaller, more affordable ones. As a result, businesses will need to stay nimble. This uncertainty can be a curse, or an opportunity for those ready to take the challenge.
The pandemic stopped a lot of people in their tracks, but also set many in motion. People freed to work remotely realized that they could beam into their meetings from 1,000 miles away just as easily as 10. No wonder, then, that almost all of this year’s survey of top-ranked real estate markets are in faster growing southern and western regions and away from the coasts.
The two top-rated metro areas in the Emerging Trends survey, Nashville and Raleigh/Durham, each have fewer than 2.5 million people, but they are growing explosively. And they’ve shown impressive economic staying power even in a pandemic. They regained jobs lost in the downturn much faster than other cities. By the end of 2021, cities like Phoenix, Charlotte and Nashville are expected to regain nearly all lost jobs, while the US as a whole is projected to be down almost 2%. Meanwhile, the large cities that dominated the list for years are now slipping. Several expensive markets, including Los Angeles, San Francisco and Washington, D.C., all failed to break into the top 10. Ratings for traditional investor favorites like San Francisco and Manhattan are tanking, as the high cost of living drives jobs and job-seekers to more favorable climes. Seattle was the last large or coastal metro area to top the list, in 2018.
