For decades, large American cities have enjoyed unparalleled population growth and economic stability. Commercial real estate properties located downtown were profitable, while those in the surrounding suburbs were less profitable. However, we began seeing commercial real estate shift its focus to the suburbs in the last few years. The pandemic has only expedited that process. As the world continues to adjust to a new normal, is commercial real estate moving to the suburbs?
- The History of Thriving Downtown Business
- Big City Costs Mean a Move Away from Traditional Urban Centers
- Staying Home: Work, Life, and Play in the Time of COVID-19
- Commercial Real Estate, the Pandemic, and the Move to the Suburbs
- What’s the Future of Urban Commercial Real Estate?
The History of Thriving Downtown Business
America began as a predominantly rural nation. However, as industry became more commonplace at the end of the 19th century, more and more Americans moved towards thriving downtown areas. New technology allowed skyscrapers to don the landscape of major cities like New York, San Francisco, and Chicago.
In the 20th century, these downtown areas only continued to grow. However, in the 1950s, as automobiles became more commonplace in the American family, people began moving away from city centers, making the commute to downtown workplaces.
Still, major downtown areas have remained the hub of business activity for over a century. Moving into the 21st century, downtown areas even saw a massive uptick in housing multifamily developments, with young people choosing to live, work, and play downtown.
However, in the past few years, we’ve seen a move away from urban centers, both by residents and businesses.
Big City Costs Mean a Move Away from Traditional Urban Centers
The early 21st century saw a surge in young generations moving away from the suburbs, opting instead for smaller housing options in the busy downtown districts. However, as the cost of living continued to rise and salaries remained stagnant, many of these city dwellers were forced to leave the major cities and move either to smaller, more affordable urban areas or to the suburbs.
Additionally, many Gen-Xers and Millennials who initially chose city life packed up and moved away from downtown as they began families. As a result, commercial real estate began to shift its focus as well.
Staying Home: Work, Life, and Play in the Time of COVID-19
It’s no secret that the Coronavirus pandemic shifted the way we live. Business owners and employees work from home rather than commute to a crowded and unsafe office environment.
Children are learning remotely in many areas of the country. We shop online, order takeout from our favorite restaurants rather than dining in, and connect with family and friends via FaceTime rather than in person.
The Exodus to the Suburbs
This changed lifestyle has only expedited the exodus away from cities. More people than ever are leaving their urban condos and apartments, opting instead for larger suburban homes. The reason for this shift is threefold.
First, we know that crowded spaces are a hotbed for Coronavirus transmission. Therefore, those living in densely populated cities, in crowded apartment buildings, had to consider the potential health consequences of staying in the city. Similarly, working in a crowded office building downtown no longer seemed like the right decision for public health.
Secondly, as the pandemic toppled businesses and shut down the economy, the Federal Reserve drastically cut interest rates. In turn, many mortgage lenders cut interest rates to the lowest we have seen in decades. Therefore, more families can afford to buy homes in the suburbs than ever before.
More people than ever are leaving their urban condos and apartments, opting instead for larger suburban homes.
Finally, with so many Americans working from home – and so many children learning remotely as well – families are spending more time within the walls of their houses than ever before. Trying to find space to work, do school, and find solitude can be nearly impossible in smaller urban living communities. Therefore, more families are packing up and moving to the suburbs, where they can have more space to work, learn, and play.
Commercial Real Estate, the Pandemic, and the Move to the Suburbs
The pandemic isn’t just changing the lives of everyday working people. It’s also changing the landscape of commercial real estate. Large urban office buildings, downtown shops and restaurants, and even urban multifamily housing is taking a hit as COVID-19 continues to take a toll.
As a result, we’re seeing businesses move away from large cities and into more affordable suburban areas. Suburban commercial real estate is more affordable, but it also has access to plenty of amenities and transportation services. Furthermore, many employees prefer working in a suburban office because it offers a shorter commute, less traffic, and often means free parking.
What’s the Future of Urban Commercial Real Estate?
For downtown business owners, investors, and property managers, this shift towards suburban CRE could be difficult. Many businesses that had previously signed long-term leases are now looking to sublease these properties instead.
While no one knows for certain what the future holds for commercial real estate, we can follow the current trends. Downtown properties might struggle in the short-term as suburban CRE flourishes. However, economic challenges in urban areas might also mean once-in-a-generation investment opportunities for real estate investors.
To learn more about commercial real estate in your area (both in the city and in the suburbs), contact one of our experienced brokers. We are the experts at understanding Texas commercial real estate trends.