3 Signs Big City Real Estate is Making a Comeback

Mere months after the start of the pandemic, the world—it felt—had declared city life obsolete. Remote work was the new normal; retail and restaurants were shuttered; and density was now dangerous. 

It turns out cities weren’t dead, just dormant. Only two months after the grand reopening of the country, cities are already starting to thrive. 

Here are three signs that major metropolitans are making a rapid comeback. 

Migration Is Slowing

Last year, city dwellers abandoned small, dense apartment living for suburban sprawl and affordability. Although the trend was the most severe in San Francisco and New York, there was a widespread exodus out of all major metropolitans. 

Some 18 months later, the trend hasn’t necessarily reversed, but it has slowed considerably. While San Francisco, New York and Los Angeles are still the top three metros for outflow among homebuyers, research from home purchasing site Redfin found that fewer people are leaving today than they were a year ago. 

Data from UBS Evidence Lab published by Business Insider shows that moves back to big cities spiked in the first half of the year, while moves to small towns and suburban markets has returned to normal, pre-pandemic levels. 

The pandemic has also sent a new group to major metros: suburbanites. Homeowners in popular suburban markets saw an opportunity to sell at a profit—a move that was impossible before the pandemic when demand trends were much different—and move to a major city, where they could buy a home at a discount, according to a report from the New York Times. 

Rents Trend Up

Across the country, apartment rents have almost completely rebounded to pre-pandemic levels. New York and Los Angeles, the two largest metros in the US, have completely recovered. Rents were up 5.8% in New York in August and 2.5% in Los Angeles. 

Boston, Portland, St. Paul, Dallas and Chicago all had increasing rents this year, according to data from Apartment List. In the 100 largest metros, only eight cities have not recovered from the pandemic, and four of those cities— San Francisco, Oakland, San Jose and Fremont—are in the Bay Area, where rents tumbled double digits during the pandemic. 

Rents are also cooling off in some secondary hotspots. In Boise and Spokane, rents increased by only .8% and 2.1%, respectively. While still impressive, it’s a substantial decrease from pandemic-peak trends when rents were growing by 5% per month. 

Office Leasing Returns in New York 

The headline of a New York Times article from July characterized the lack of office leasing in Manhattan as a ”dire sign” for the city. Office vacancy is nearly 19%, and even higher in some of the city’s central office hubs, like Downtown Manhattan where the availability rate is 21%. Only 12% of office tenants have returned to their desks, and there is a construction pipeline of 14 million square feet. 

The pandemic certainly created a disaster for New York’s office market—but there are already signs it is starting to recover. In August, office leasing increased for the fifth consecutive month with 2.5 million square feet in leasing activity, a 3.9% increase from July and nearly double the leasing activity from August 2020. In September, another 60% of the office-using workforce is expected to return, which will no doubt support more leasing activity. 

We keep an eye on New York because it is generally a good indicator of trends to come in other major metros, and that is true now as well. Brokers from Cushman & Wakefield have reported that office tours are increasing each month across six of the nation’s largest office markets (Los Angeles, Chicago, San Francisco, New York City, Boston and Washington DC), and in the second quarter, office leasing activity overall grew 28% year-over-year. This is the early bubbling of a run-up in new office leases.

The return of city real estate seems inevitable, and these early signs show that life will return to urban areas sooner than expected.