The Pandemic Sharpened Sea Changes Brewing for Years in Residential Real Estate
Residential real estate markets across the globe have seen dramatic shifts since March, as buyers rush to find more spacious properties, no longer tethered by daily commutes to physical offices in city centers.
But in many ways, this movement reflects trends that were underway long before anyone had ever heard the term “social distancing,” and the fundamentals of major urban markets are likely to remain intact, said panelists on Day 1 of Mansion Global’s inaugural Luxury Real Estate Conference on Tuesday.
“A lot of people have attributed the migratory patterns [of U.S. residents out of big cities] to Covid, but this has been going on for quite a long time,” said Jonathan Woloshin, head of U.S. Real Estate, Global Wealth Management at the Chief Investment Officer of UBS. “Between 2010 and 2018, the five biggest states that have lost domestic population are New York, New Jersey, Connecticut, Illinois, and California.”
Residents and some business owners had already been leaving high-priced, heavily taxed states in favor of areas including South Florida, Nashville, and Texas, with many buyers also flocking to cities like Phoenix, Salt Lake City, and Las Vegas.
“In our view, this is not new, it’s not temporary, it will continue as companies figure out how many [employees] will be remote full time,” Mr. Woloshin added.
Similar trends were underway in London pre-pandemic, said Stephen Moroukian,
head of product and proposition for Barclays Private Bank. “There was a sentiment to move out from London into the country,” Mr. Moroukian said. “A trend that was already moving has accelerated.”
Urban apartments trend smaller while “secondary” markets see a gold rush
Many well-off city dwellers who have fled to larger country homes in the past six months have either held onto their urban properties or are looking to downsize, as “vacation” homes become primary residences and city properties turn into pieds-a-terre.
This dovetails with developers’ move toward smaller units over the past several years, said Don Peebles, chairman and CEO of the Peebles Corporation, a New York City-based real estate investment, and development firm.“We think there will be a continual flight to less-dense areas by affluent customers, and their urban homes, such as in New York City, will get smaller,” Mr. Peebles said. “What we’ll see now is that luxury will not completely [be about] larger square footages.”
Those buyers are heading to smaller cities or resort markets in search of friendlier tax laws and higher quality of life, and versions of this migration pattern can be seen in markets across the globe.
“We see more of our clients looking at the French Riviera and thinking about long term requirements, being able to work remotely,” Mr. Moroukian said. “Whereas before they would have purchased the second home for six or eight weeks of the year, it’s now the other way around. The London home is the one you’d use” for a fraction of the year.
“In Europe, second-home markets like Provence, the South of France, Tuscany have really taken off since their markets opened up,” added Kate Everett-Allen, partner and head of global residential research at Knight Frank.
Strong activity is also being seen in cities ranging from Manila to Stockholm, Geneva, Moscow, and Tokyo, Ms. Everett-Allen said. “There’s a whole range of reasons why these secondary markets are coming to the fore.”
Big Cities Still Aren’t Down for the Count
While experts all seem to agree that some version of work-from-home is here to stay post-pandemic, this hardly means cities like New York and San Francisco will shrivel up or lose their appeal. Instead, developers are adjusting to changes in demand, and buyers and renters may feel more freedom to explore farther-flung areas.
“Rather than folks leaving entirely, remote work will play some role in where we think about where we locate,” said Dr. Sam Chandan, Silverstein chair and academic dean at the
New York University Schack Institute of Real Estate. “If a couple of days a week I’m working remotely, all of a sudden Westchester, New Jersey, Connecticut all become viable.”
“There are very good reasons people live in cities and have moved to cities,” said Dr. Christopher J. Mayer, Milstein professor of real estate and co-director of the Milstein Center for real estate at Columbia Business School. “It’s about attractive places to live, going out to interesting restaurants, shows, experiences that are all really unique to cities.”
In London, for instance, some sales have continued throughout the pandemic, said Ciara Gormley, head of design at LODHA Group UK, and the city “by its very nature has a lot of stability, which still makes it quite an attractive place for people to buy.”
For the moment, travel restrictions mean that domestic buyers have the market cornered in large cities, and there may be some room to find relative deals.
“What will propel New York will be bargain hunters when we get through this pandemic,” Mr. Peebles said. “The days of seeing $10,000-, $13,000-square-foot pricing, it’s going to take a while for that to come back.”
“When we look at New York or San Francisco, they have a lot going for them,” Mr. Woloshin added. “Once we get a vaccine, we will see a resurgence. Will it go back to the hot prices we had? Time will tell.”