The pandemic has led to sweeping changes in the way that we live our daily lives. Whether or not these behavioral changes, as Marcus & Millichap’s John Chang puts it, stick for the long term are the biggest question mark for commercial real estate players.
While the pandemic has impacted everything from the way we shop and buy goods to how we interact with friends, remote work is the most significant change that will impact the commercial real estate market, not only for office space but housing and retail as well.
“The behavior changes that holds the biggest impact for commercial real estate is people’s ability to work from home,” Chang, SVP and director of research services at Marcus & Millichap, said in a recent video. “This changed office usage and has caused or enabled people to move to the suburbs or different cities.”
People are moving from large cities like New York and San Francisco to small cities. There are several that have topped the list as the most popular, including sunbelt markets like Phoenix, Seattle, Charlotte, Atlanta, Tampa and Austin as well as Midwestern markets like Indianapolis and Kansas City.
On the other hand, the urban core has seen an exodus. “Over the short-term, this has caused demand for housing, office space and a host of other real estate-related services in Downtown areas to slacken,” says Chang.
Already, these migration patterns have dramatically changed real estate fundamentals. “Demand for suburban apartments and office space has benefitted greatly,” says Chang. “For the first time on record, urban office and vacancy rates have risen above their suburban counterparts.”
According to Chang, this pandemic was not the catalyst for these migration patterns. Rather, it only accelerated existing trends. “The pandemic did not cause this change. It merely accelerated this change,” he says. “The actual cause is demographics related with millennials aging into their 30s. That is the real driver.”
While it is unclear if these are temporary or permanent moves, they have the potential to significantly alter commercial real estate market. “Whether these relocations will stick after the pandemic is the big question,” says Chang. “If they do, they are rewriting the commercial real estate outlook for every property type.”
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