Since the early days of the pandemic there has been talk about companies favoring suburban investments over urban ones and shifting their workplace strategies to the suburbs in a hub-and-spoke model. At least one survey from Seyfarth suggests that this strategy may be coursing in a new direction. 

In the survey, Seyfarth asks respondents if their companies will shift their investment sights to suburban markets and relocate all or part of their workforce to other states. A vast majority, 67%, said no, while 23% are shifting their investment sights to suburban markets. Only 2% were moving their workforces to other states.

Also, a large number of respondents, 39%, see urban multifamily recovering faster than any other CRE product type.

Taken together, these data points suggest that the suburbs—especially neighborhoods outside of larger urban markets—will not receive the lion’s share of investment this year. Rather, sentiment is now pointing to secondary and smaller cities as more likely to be a major focus. 

There have been many reports covering various CRE sectors that show the strength in these smaller markets.

A report on the office sector from Marcus & Millichap shows that momentum markets—cities like Atlanta, Charlotte, Minneapolis-St. Paul Raleigh, Tampa-St. Petersburg and West Palm Beach—are either outperforming the US average or holding steady as they contend with migration from denser urban areas. Most of the cities in this sector are in the Sunbelt and the South, in areas with lower-cost housing.

Another datapoint, this time for multifamily: 75.8% of investment happened outside of major metros last year, according to Newmark. This is the highest investment allocation outside of big cities on record. 

A separate report from CrowdStreet lists several smaller-sized cities that are ripe for apartment acquisitions, as renters have moved en masse to these markets, abandoning pricey urban centers and coastal cities for the suburbs, the Sun Belt, and secondary gateway cities.

These include Raleigh-Durham, Austin, Charlotte, Salt Lake City, Phoenix, Atlanta, Dallas-Fort Worth, Orlando, Nashville and Tampa-St.Petersburg.

The overall outlook for these markets remains positive, according to CrowdStreet, especially as interest rates stay low and single-family values have spiked. The firm has a “strong conviction for 18-hour cities in growing secondary markets” that have favorable business climates, a strong stable of educated workers, and affordability. 

While a recent Apartment List report points to rent stabilization in larger, coastal cities, a group of mid-sized markets experienced significant increases fueled by tightening supply and low vacancies. However, the growth may now be flattening out.  Boise leads the way, with rents up 12.4% year-over-year, followed by Chesapeake, Va., which saw an increase of 8.4% during the same period.