There has been a reckoning in the real estate market. Cities are losing residents, while suburbs are gaining the outflow.
Closer to home, people are moving from New York City to the New Jersey suburbs, to the Long Island suburbs and to the Connecticut suburbs. Even rural areas have also seen a strong pick-up in activity.
What seemed like perhaps a temporary trend at the beginning of the pandemic, appears to be here to stay.
The reasoning is two-fold: (1) the majority of companies are still allowing 100% work from home, with an unclear timetable for return to the office and (2) continuing lack of appeal in the cities – besides outdoor restaurants, there is currently little to do.
At the same time, although by now buyers are comfortable venturing out to view homes, sellers are still not as comfortable showing their homes. Accordingly, inventory in the suburbs has been extremely limited, driving prices up substantially.
So, what’s a savvy real estate investor to do?
In our view, cities are not done and may offer some interesting investment opportunities.
A huge part of why people choose to live in cities is the convince factor (where else can you get a haircut, go to the pharmacy, and get dry cleaning on the same block?). Cities also offer tremendous entertainment and cultural value close by.
Most importantly, however, the work from home trend while here to stay, will not dominate to such an extent that the proximity to the office becomes worthless. At the end of the day, most companies want to have some control over their employees and ensure collaboration that leads to creativity – both of those goals are better done in person. Post COVID, perhaps working from home one or two days a week will become the norm for those employees that used to work five days a week from the office.
There will still be strong demand to be near the center of the city.
While residential prices have fallen substantially in New York City, we feel it’s in the commercial space where deeply discounted deals can be found. Look for spaces that cater to businesses that cannot be replaced by the internet – medical imaging offices, restaurants, UPS/FedEx offices.
If looking to take advantage of the dislocation in the market, liquidity and access to funding will be paramount. Investors will still need to weather the ongoing economic storm prior to prices and rents recovering.