2021 Real Estate Trends: Part II

Welcome to 2021.

If you missed our first set of trends to keep an eye on in 2021, click here to read it.

Working from home has detached many from their connections to the cities offering the bulk of office jobs. Seeking more space and lower rents, they have begun to move to cities like Miami, Austin, and elsewhere. They’re not alone. Companies in highly expensive markets have begun transitioning their offices from coastal markets like New York and San Francisco as work becomes uncoupled from the office. Both trends create opportunities for decisive multifamily investors.

Office Workers Continue to Depart Cities

The transition to remote work has encouraged many able to do so to adjust their living situations. Whether transitioning from an urban setting to a suburban or rural one, or moving from a studio to a one-bedroom, these changes have already begun to influence where investors deploy capital and other criteria.

San Francisco faces an anecdotal exodus of tech workers, who have fled for Austin, New York, and other cities. On the other side of the country, young families and workers in New York City have left for nearby suburbs, Florida, and elsewhere. Though this trend began almost a full twelve months ago, housing supply in newly desirable markets has blunted it. It would be tough to overstate how acute the shortage of single-family homes has become. NPR has reported that, in October, inventory of single-family homes dropped to slightly over two month’s worth. That is the lowest level of available inventory since the National Association of Realtors began recording supply.

What’s the net result for multifamily investors? Increased demand for product outside major cities. Builders of new homes and developers of new apartment complexes face headwinds in the form of COVID-related cost increases, material shortages, and high land prices. Even without them, the number of homes needed to meet demand far exceeds what the industry can produce in a given year. The main thing to keep an eye on are the cities that benefit from relocations. Small cities are angling for their share of those departing, but Miami, Phoenix, and others will be the real winners.

Companies Accelerate Relocations

Oracle. Tesla. Hewlett Packard Enterprise. Goldman Sachs. Citadel. Virtu. Blackstone. These companies, some household names and some more obscure, have all begun the process of establishing major satellite offices—or moving their headquarters—from Silicon Valley and Wall Street to Texas and Florida. Some of these shifts have come as surprises, and some began long ago. Goldman’s (still tentative) decision to open an asset management office in Florida was unexpected, while Oracle began moving operations to Texas years ago to lower overhead.

As employees scatter and large office leases come up for renewal, the more defections and downsizing seem inevitable. Of course, not all companies will leave expensive coastal markets. BlackRock executives have asserted that the company will still complete a planned move to its new headquarters in New York City when doing so becomes feasible.

More companies will likely announce relocations and downsizing rather than continue leasing large headquarters in expensive markets. This spells more pain for office investors and operators in expensive markets, and a continuing boom for home-builders and multifamily owners in cheaper markets.

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