It’s been six months since the COVID-19 Public Health Emergency declaration ended, and while the virus is still around, lockdowns feel like a distant memory as economic activity has rebounded and the labor market has recovered.
The chips have fallen, and the effects of the pandemic have been pervasive in the real estate industry. While the housing market will continue to evolve, some trends may be here to stay, and real estate investors will need to adapt their strategies to a post-pandemic way of life. It’s an era full of new opportunities and challenges, largely driven by changes in how people work and play.
Here are five outcomes of the pandemic that changed real estate.
1. Hybrid Work Remains Common, Affecting Demand for Office Space
According to a recent Gallup report, the share of remote-capable employees working fully on-site dropped from 60% in 2019 to just 20% in 2023, while the share of fully remote workers has grown. About 40% of remote-capable workers who once worked fully on-site have moved to either a fully remote or hybrid work model. Globally, office attendance is down by 30% in major cities, according to a McKinsey report.
That’s had a major impact on commercial office buildings, especially in downtown submarkets. The nationwide office vacancy rate reached 18.2% in Q2, a 30-year high, with older buildings in distressed downtown areas hit the hardest, according to CBRE.
Loans secured by office buildings are driving an increase in delinquencies, according to the Mortgage Bankers Association. The problem could get worse as more office leases expire, and nearly 20% of office loans will mature between 2023 and 2026 in a high-interest rate environment that spells trouble for borrowers.
Analysts at major firms are split on whether the commercial real estate market is headed for a severe crash. Other asset classes in the commercial space are still performing, which may mitigate systemic risks—office space accounts for less than 5% of total bank loans.
Nevertheless, it’s unlikely the demand for Class B office space will rebound any time in the near future. That’ll have a ripple effect on downtown businesses, driving down tax revenue for cities and potentially setting off what’s known as the “urban doom loop,” where deteriorating amenities and services lead people to abandon city centers.
2. Migration Away from Urban Cores Shifts Investment Opportunities
Whether the urban doom loop takes hold, migration away from downtown areas is already evident. Between mid-2020 and mid-2022, New York City’s population in the urban core dropped 5%, while San Francisco saw a 7% decline, according to McKinsey.
Meanwhile, suburban populations grew. Activity remains depressed in the urban core—recent mobile phone data shows that most U.S. downtown areas have yet to recover relative to pre-pandemic traffic.
People also crossed state borders to leave high-priced markets for smaller metropolitan areas. 2022 census data showed people leaving states like New York and California while the population in Florida, Texas, and the Carolinas grew.
Migration trends continue to shift since pandemic-fueled demand in cities like Austin, Texas, led to skyrocketing rents that priced out residents. But recent data from Redfin shows continued outflow from superstar cities like San Francisco, New York, Los Angeles, and Washington, D.C.
That’s partly because many knowledge workers in those cities now have the option to work from anywhere—and they’re trading in their current residences for lower-priced options. As more big-city dwellers migrate, there will be new opportunities for real estate investors in markets like Sacramento, California; Las Vegas; and Orlando, Florida.
3. People Are Traveling for Longer, Increasing the Popularity of Midterm Rentals
With the growing prevalence of remote work, travelers are no longer confined to weekends and holidays or scheduled time off. According to a study conducted on behalf of MBO Partners, the number of American workers who describe themselves as digital nomads skyrocketed 131% between 2019 and 2023.
That may be why travelers are booking longer stays on Airbnb. Global data from Airbnb shows that stays longer than 28 days accounted for 21% of bookings in 2022 and 18% of bookings in the first quarter of 2023. The midterm rental platform Furnished Finder, which originally focused on connecting rental hosts with travel nurses, has grown to 1.1 million monthly users.
While it’s likely that the midterm boom will continue to slow as hybrid work arrangements replace fully remote arrangements for many workers, there’s an opportunity for investors to explore the strategy as occupancy rates for short-term rentals decline.
4. Suburban Shopping Creates New Retail Investment Potential
Shopping at brick-and-mortar retail stores plummeted during the pandemic, and foot traffic near suburban stores is rebounding faster than in urban cores, according to McKinsey. More people are shopping near where they live—in the suburbs—rather than visiting stores in the downtown areas where they once commuted to work daily.
Retail vacancy rates are lower in suburban areas than they’ve been in more than 15 years, while retail availability in urban areas is increasing. Many suburban landlords have been seeing an increase in leasing activity since the beginning of 2023. Suburban retail appears to be a bright spot for commercial real estate, especially in suburbs that are still conveniently located close to urban hubs.
Some experts have pointed to mixed-use developments in the suburbs as an opportunity for real estate investors, as low-end, enclosed shopping malls fail to draw shoppers, and more people seek neighborhood amenities when relocating to the suburbs.
5. Miami Has Emerged as a Top Real Estate Market
The U.S. housing market is rebounding, according to Zillow, with most of the value concentrated in notoriously high-priced cities like New York and Los Angeles—but Miami is new to the list of the top five most valuable metro areas, moving up from its ninth-place spot in 2021, according to Zillow.
Indeed, four of the six markets that increased in value the most since the onset of the pandemic were in Florida, with Tampa boasting $18.5 billion in added real estate value. Florida is now the second-most valuable state after California.
In June, BiggerPockets reported that high earners in New York and San Francisco could save thousands annually by moving to Miami. The savings, and perhaps the warm weather, make Florida a top choice for movers—the state ranked first for total net migration, according to the latest census data. More than 1,200 people relocate to the Sunshine State every day.
Challenges like rising rents, property taxes, and homeowners insurance premiums may begin to slow down migration to the state. However, RentCafe estimates that Miami was the most competitive rental market for the summer moving season.
The Miami housing market is currently less competitive, according to Redfin. And median prices are more attainable for investors than in other top cities.
That doesn’t mean investors should flock to Miami—but keeping an eye on the city and nearby Florida markets may prove worthwhile. Investors can also look at other areas gaining rental demand due to pandemic-related changes in housing and migration behavior. As remote workers leave pricey areas, which city will be the next Miami?
The Bottom Line
The pandemic has had a ripple effect on real estate, and there are more waves to come. But, it appears that hybrid or remote work arrangements are the new normal for remote-capable businesses. That’s motivating changes in migration patterns, and it’s affecting how people shop and where they go for leisure activities.
This new era presents opportunities for new investment strategies, like mixed-use development, long-distance investing, and midterm rentals, while creating challenges for urban retail and office property owners.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.