While the coronavirus pandemic has impacted all economic sectors and aspects of our daily lives, it has also accelerated some trends that were increasingly visible well before the outbreak.
A panel at the National Association of Real Estate Editors’ annual conference explored how the accelerated shift in preference for suburban living and the subsequent work options is affecting the real estate market. Devon Thorsby, real estate editor at U.S. News & World Report, moderated the conversation between Rebecca Rockey, head of Global Forecasting at Cushman & Wakefield; Rob Dietz, chief economist at the National Association of Home Builders; and Homes.com President David Mele.
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The preference for living in the suburbs has been growing steadily since the mid-2010s with visible implications for the residential market, as coming-of-age Millennials started becoming homeowners, Rockey said, quoting Cushman & Wakefield research findings.
On the commercial side, the gap between suburban and central business districts’ vacancy rates has compressed over the past few years. Compared to the thriving CBDs, the suburban office markets have underperformed, especially in terms of vacancy rate, but they benefitted from “a very conservative pipeline,” Rockey noted.
Another trend that was visible since the mid-2010s and has been gaining traction since the outbreak is the movement to tech cities in Northern California, Texas and Massachusetts, as well as more affordable markets in the Sun Belt states.
Rethinking the Workspace
The current health crisis and the subsequent economic downturn have almost instantly disrupted the way work was done—but, for most corporate employers, it’s business as usual despite the shift to working from home. According to Rockey, “… currently, office occupiers—although they’re relatively less impacted from a business perspective than hospitality and tourism and other harder hit industries—are still in the middle of a recession, a lower-demand environment (and) a global health crisis and are therefore very cautious about how to bring people back to work and make sure people are safe.”
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Consequently, the companies need to be aware of the distinction between the physical occupancy and the economic occupancy of a building. “We’ve seen economic occupancy hold up, but we’ve started to see the correction driven by the cycle kick in,” she noted.
Furthermore, the work-from-home trend is expected to have a negative impact on office demand over the next quarters. “We expect permanent work from home to increase, although it will remain a minority … and an important thing to keep in mind is that this is going to impact absorption rates for both CBDs and suburban office markets,” Rockey said.
Among the trends that were already in place before the pandemic is the evolving geography of housing demand. Residential construction activity—both in single-family and multifamily properties—has been steadily shifting to lower-density markets, according to Dietz.
Due to the surging demand, which has been driven by low interest rates, demographics and evolving geography preferences, builders are now selling more homes in pre-development phases. This means that sales are likely to see some declines because builders don’t want to act prematurely and enter sales contracts for homes that cannot be completed due to constraints related to labor, building and materials. On the other hand, single-family construction is expected to increase as the sales backlog is cleared.
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But the widespread adoption of work from home is starting to cause changes in the size of newly built single-family homes, Dietz said. New homes had been shrinking since 2015, but that trend is now starting to level off and is projected to increase over the next four to six quarters. According to a NAHB survey, buyers are now looking for properties that include one and, in extreme cases, two home offices and even workout space. “Clearly not everyone can afford this, but in those parts of the markets that can afford it we’re seeing there’s demand and we’re expecting home sizes to increase,” Dietz said.
Similarly, home builders are seeing a shift in the type of multifamily rental units. Over the last two decades, residential properties with more than 55 units have taken a large part of the market share. As the geography preference will continue to change, “we’re going to build more low-rise, garden-style apartments, fewer buildings with elevators and large common spaces,” according to Dietz.
To Move or Not to Move?
Citing findings of a Homes.com December survey data from more than 1,000 consumers—both homeowners and renters—and 600 brokers and agents, Mele noted that not only is the coronavirus pandemic impacting moves, but it is driving moves.
According to the survey, 36 percent of consumers who moved in the past 12 months did not plan to move before the pandemic and 45 percent of respondents said they would move if they had the option to work remotely, while 20 percent said they did move this year because of the flexibility that came with working remotely. “Work from home … is the game-changer,” Mele concluded.
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Moves are getting longer as well: 40 percent of the respondents who said they had moved this year moved more than 100 miles away, and 42 percent of those who plan to move in the next 12 months will move the same distance. These long-distance moves are mainly driven by availability and affordability of the features that home buyers are now looking for: Home office, larger square footage, enclosed backyards and/or closed floor plan. “These features are harder to find in a city and they tend to be more expensive, so it’s pretty clear that the need and the desire for these features are really driving the shift from cities to suburbs … and even rural markets,” Mele noted.
Furthermore, 39 percent of respondents said they moved to existing single-family homes, 23 percent moved to apartments, 10 percent moved to condo/townhouses, and 10 percent moved to newly built single-family homes. Only 4 percent of consumers said they moved back to live with parents or family, and 6 percent rented a room in a shared private residence.
A whopping 70 percent of the respondents who moved in the past 12 months said they would not be relocating back to their pre-pandemic market of residence.
The pandemic has also driven changes in home buyers’ location requirements, according to the survey quoted by Mele. The biggest change that agents and brokers report from home buyers is that 32 percent of respondents are requesting a move from cities to the suburbs. The next requirement is related to work from home: less need for commuting is impacting location requirements for 23 percent of respondents. On a similar note, 16 percent of respondents now prefer to live in a less populated area. Only 1 percent of respondents are moving from suburbs to cities, while 12 percent said they are moving within the same market, according to the survey.