For decades, major cities have ruled. Real estate investment and development has targeted dense-urban areas conducive to live-work-play lifestyles, public transit and walkability. However, this decades-long urban renaissance may be coming to an end, or at least slowing down. The Emerging Trends in Real Estate 2021 report from PwC and the Urban Land Institute predicts that new real estate demand will favor lower-density suburbs and more affordable housing markets.
The report asserts that the pandemic will likely stunt urban population growth and drive demand to suburban markets. The trend has already been pegged as the Great American Move, which includes a migration from the urban core to both the suburbs as well as smaller metropolitan cities.
Suburban locations are already well positioned to replace urban markets. Many smaller cities already offer urban-style amenities, like a dynamic culture, entertainment and boutique restaurants. They also offer something major metros don’t: lower-cost housing, quality school systems and space. These characteristics are becoming increasingly important to prospective residents.
If demand turns to suburban markets, it could trigger fiscal challenges in urban areas. Since the 1990s, small metropolitans and major urban markets together have accounted for at least 60% of the population in the US, and large suburban markets have accounted for 22% to 25% of the US population. People have congregated in cities because they have historically offered a better lifestyle experience, jobs, retail options, smaller environmental footprint and better public transportation options, according to the Emerging Trends report.
Suburban markets have become more attractive over the last two decades, but widespread work-from-home policies born during the pandemic have made moving to the suburbans a viable reality. Millennials, particularly those starting a family, are driving the trend to move to the suburbs, but baby boomers and gen-X are also actively pursuing suburban locations.
Urban markets do have an ace to play. Gen-Z could be the bright spot for urban renewal. Surveys show that this demographic will likely follow previous trends that favor urban metros for all of the same reasons as previous generations: culture, walkability, public transit and opportunity.
It should be noted, however, that Gen-Z is smaller than previous generations, with only 67 million compared to the 72 million of millennials and they will have unique needs and demands for housing, office and retail—all of which could require yet another adjustment for the commercial real estate market.