COVID-19 and the Flight to he 'Burbs - Part 1
July 08, 2020
In this podcast Darren Griffith, a director in EisnerAmper’s Real Estate Private Equity Group, and Tim Schuster, a senior manager in the Private Business Services Group, discuss trends in the real estate market where families and individuals are looking to move out of the city and into suburban living. We evaluate how COVID-19 has escalated this trend and whether or not it makes sense to live in cities.
DF: So, we're all living in different areas of New Jersey, seeing different trends, and it's definitely an interesting trend. Darren, did you want to give us a bit of your background and what your thoughts are?
DG: Sure. So my background is 100% in real estate. I've worked in real estate in a variety of capacities and have seen different trends over different cycles. And I do agree that there is a trend of people going from more of your urban or densely populated environment to a place where they are maybe a little bit more spread out and have a little bit more space, obviously due to recent health conditions and the introduction of COVID-19 into our United States population.
DF: Great. Tim, could you give us your background and your thoughts?
TS: Yeah, absolutely Donna. My background is in the real estate realm as well. That's one of the areas that I specialize in, in the private business group. I live currently in one of the largest cities in New Jersey. And it's been interesting for me from a personal perspective to rethink this. There's some data there that's kind of backing this up, right? What's the thought about being in this city? Is it really something that's worth it?
It's interesting, Harris Poll found recently that nearly a third of Americans are considering moving to lesser-dense populated area in wake of this pandemic. And it is something that I'm taking seriously into consideration. So, you're limited to a small area in an apartment complex, like 1000 square feet, especially with the ability or lack of ability to go out and explore or do different things or things aren't open, you kind of miss simple things, right? Especially living in the suburb life.
The one concept I've been telling people is I haven't seen grass recently. The little joys that you kind of see when you're living in the suburbs that kind of makes someone think when living in a city, is it something that's really, truly worth it? And especially with this ability to work from home in most white collar jobs, there really is that concept there that it is something to really rethink and consider.
DG: I agree, Tim. I think that there's going to be a lot of people who are, like yourself, who are going to reconsider where they live. Personally, I live in the suburbs and I see grass every day. And it's one of those things that essentially if I was working traditionally as we usually do, I wouldn't see as much grass. So I can understand how people in a city life similar to how you are, if you're not going to be able to enjoy those things that are a part of the city life, obviously you want to enjoy those things that are not a part of the city life. And right now, maybe someone who's in your position may not be able to enjoy either.
TS: It's interesting. Right, Darren? So now let's talk about the suburban life for a second there. What do you see as the impact of this on a suburban lifestyle?
DG: Well, so it's interesting that you say that. So I've been having conversations with a lot of people about real estate in general, whether it's office or multifamily or residential housing. What I've heard from several people were one, on the residential housing side, housing prices have been going up. We already had a demand issue, and we didn't have enough supply in order to do that. So now we have more people in your situation who are in the city, they want more space, they're making that transition to suburban lifestyle, but there aren't any homes for them. So people essentially have to bid a higher price than they usually would for these homes. And a lot of these homes are actually going for above list price.
So what that's going to do is obviously it's going to increase the price of the housing, but it's also an interesting aspect of that is with COVID-19, there are some people that don't have those jobs to have a mortgage, right? So in addition to that, it's going to be limited to those people who have the higher incomes and those people who still have their jobs. But then you're also going to have a segment of the population that's going to go from renting in the cities to renting in a multifamily building as well. And I think that demand is going to be increased.
We recently had a multifamily panel where we spoke to some of the larger landlords here in New Jersey. And they said that their renewals are at an all-time high. Right? So what do we do in suburban markets when everybody's renewing and then we have a whole influx of people moving into those same type of apartments? That's an interesting dynamic that I'm looking and waiting to see how that turns out.
TS: Darren, you brought up a very interesting point, right? And let's talk about this from a city perspective and maybe a little bit from a historical context, right? One of the things I was reading before we recorded this podcast, it was pretty interesting. It was on the Business Insider article and it was looking back at World War II, right? So a major global conflict, what was sparking a decade long trend, right? People were majorly living in the cities. Obviously we didn't have the technology back at that time, but it was interesting because before the war, only 13% of Americans truly actually lived in the suburbs. Around 1970, that figure rose to about 37%. And it's interesting because then you saw this trend go back to the city living, maybe say 20 years ago, per se, just because that lifestyle was a very interesting one.
And what's also interesting to look at as well is the millennial demographic, right? Someone that I'm smack dab right in the middle of a millennial demographic, and there's actually been some studies on this as well, that showing that even back in 2018, there was a slip, not a major slip, but somewhat of a slip of people actually looking to move out of the cities.
It's interesting to think that potentially maybe the pandemic is really looking at this and coming from my perspective, I'm seriously considering it. And it's funny, you mentioned it before Darren, that the housing prices were starting to go up. I'm using those large websites that other people use just to kind of see how the housing prices are. And you put the little blip on just to see, okay, this is the price you see. And now I'm getting emails daily that says, "By the way, the price has gone up, the price has gone up, the price has gone up". So those in a suburban setting and having that ability to spread out, right, and kind of have that chance to really be able to utilize the area that's there is something of serious need for most people that I would say.
So I could see it. I mean, I see it now. It's something that I think is going to be a very interesting trend. I may even see it in the rental markets for houses just in of itself. More and more people are going to be looking to do that. I mean, even if you look at short-term statistics of people looking at beach houses now, on the Jersey shore, it's astronomical to attempt to do that. So it's going to be very, very interesting to kind of see how this all plays out. Any parting words Darren?
DG: Yeah. I guess just a little bit of a dynamic, just kind of going into to what you were talking about. A part of obviously people moving to the suburbs is also some of the jobs that are moving to the suburbs as well. And I think that there's a lot of firms that are going to continue to move some of their office space to the suburbs in order to accommodate the workforce that has moved from the city environment to the suburban environment.
Pre-pandemic, I think Global Workplace Analytics had estimated that 3.6% of US workforce work from home. And I think that's going to be an interesting dynamic to kind of throw into that as well. Post-pandemic, I think they're talking about 2021, the same study said that probably 30%. So that's going from 3.6% to 30% of people that are going to have the ability to work from home, which is a tremendous change. So I think that's also going to put a little bit more pressure on flight. And then once employers also accommodate their workers in the suburbs, they're going to stay in the suburbs, they're not going to go and live in the city and then come back to the suburbs for work. So, that's kind of where I'll leave it with you for that, Tim.
TS:I would agree with that. And actually it's something I've had legitimate conversations with business owners, and I've made note of this in a prior podcast about really rethinking about your business structure, business plans. What actually makes sense from an office location perspective? And it's interesting, I was involved in a group conversation about this a few days ago, and it's almost a general consensus, right? So you have some employers who, "Yeah, not a problem. We'll get the space for our employees who are specifically in the suburbs and we'll have them live there. They can commute there. That's fine. We'll do all the COVID procedures that we need to have in place. All is fine in the world."
There's other employers who are saying, "What's the point? If we don't have to spend money on the rent, why bother? If we're just as productive or as close to being as productive as we were in the office, let's just kind of let it be and hopefully things kind of ease up and we can kind of go back to what's called a sense of normalcy up until that point." Right? Hopefully back by then, whenever that point might be, either during COVID or post-COVID, right?
So it's going to be interesting to see, and it's one of those things that I know you and I will have plenty more conversations about as the series continues to progress. So Darren, it's a pleasure as always. Appreciate you being on today and I'm looking forward to the next few in the future.
DG:No, I agree, Tim. It was a pleasure talking to you today. And also if you have an issue getting outside and barbecuing outside your balcony in the city, you're more than welcome to come to the suburbs and hang out for a social distancing lunch or something.
TS: I'll tell you right now, Darren. I'll take you up on that because if I attempt to barbecue, I have a feeling the fire department will be called. So I will definitely take you up on that and I appreciate the offer.
DG: Sounds good.
DF:Well, thank you, Darren and Tim, for your insight into this recent real estate trend. Thank you for listening to Breaking Ground, Real Estate Insights from EisnerAmper. And visit eisneramper.com for more real estate news.