Is CRE Prepared for the Nice American Transfer to the Suburbs?

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Is CRE Ready for the Great American Move to the Suburbs?

For decades, large cities have ruled with real estate growth that is concentrated in densely populated urban areas that are conducive to lifestyle, public transport and the accessibility of life, work and leisure. However, this decade-long renaissance of cities could come to an end or at least slow down. The Emerging Trends in Real Estate 2021 report by PwC and the Urban Land Institute predicts this real estate demand may shift to favor lower density suburbs and more affordable housing markets as a result of the COVID-19 pandemic.

Suburban locations are already well positioned to replace urban markets, many of which already offer urban-style amenities such as culture and serve as centers of finance and government. With an increased focus on cheaper housing, high quality school systems and space, suburban markets can offer potential residents a wealth of benefits. This could lead to a trend of fiscal challenges in urban areas with an increase in revenue in the suburbs after the pandemic.

That would be a significant shift in population dynamics, not to mention the changes real estate must make in response. As of the 1990s, small metropolises and the urban core have made up at least 60% of the US population. Large suburban markets accounted for 22-25% of the US population, with the suburban population increasing only marginally over the past two decades. Baby boomers, Gen-X and Millennials have fueled the growth of urban markets and sparked widespread market trends such as a preference for experience, a smaller environmental footprint and better public transportation. Employers, retailers, and other commercial assets have followed these trends and have moved their business to urban markets.

PwC and the Urban Land Institute conclude that the pandemic is likely to slow urban population growth and fuel a trend already linked to the Great American Move. This includes a move from the urban core to both the suburbs and smaller metropolises. While the pandemic has certainly made the suburbs more appealing, other trends have made it a reality, namely work-from-home models that have helped give people more options where to live. Millennials, especially those starting families, are driving the trend of moving to the suburbs, but baby boomers and Gen-X are also actively pursuing suburban locations.

However, Gen-Z could be a bright spot for urban renewal. Surveys show that this is demographic will likely follow previous trends They prefer urban subways for the same reasons as previous generations: culture, accessibility, public transport and opportunities.

It should be noted that Gen-Z is smaller than previous generations, at just 67 million compared to 72 million millennials, and will have special needs and requirements for housing, office and retail – all of which could require further adjustment for the commercial real estate market.

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