The COVID-19 pandemic has intensified a demographic shift that could affect the top markets for multifamily construction for years to come.
A new report from Moody's Analytics finds that the crisis could result in more people moving away from big cities like New York, Los Angeles and Chicago to smaller towns like Madison, Wisconsin, and Durham, North Carolina.
"The generation growing up today may remember the impact of the COVID-19 pandemic and be more likely to opt to live in less densely packed places," Moody's Analytics report author Adam Kamins wrote.
This trend is poised to affect multifamily construction activity, according to the National Association of Home Builders. The group’s latest Home Building Geography Index found that residential construction activity is expanding at a more rapid rate in lower density markets such as smaller cities and rural areas.
“An unavoidable lesson of the public health crisis associated with COVID-19 is that major metropolitan areas faced greater challenges,” according to NAHB economist Litic Murlali. “High-density lifestyles, championed by some planners over the last decade as a rival to suburban living, proved to be vulnerable to a virus due to crowded living conditions, dependency on mass transit, and insufficient health and public sector infrastructure.”
This will lead to more construction in low- and medium-density markets, as households seek out homes further from urban cores, particularly as telecommuting continues in elevated numbers, Murali writes.
In addition, an analysis of new U.S. Census Bureau data by the Brookings Institution shows that many U.S. cities have seen a decline in population growth in recent years. In the last year only two of 10 U.S. cities with populations greater than 1 million — Phoenix and San Antonio, Texas — have experienced growth rates higher than 1%, with New York, Chicago and San Jose, California experiencing negative growth.
The demographic shift is affecting apartment rentals and luxury condo purchases in cities like New York. The number of real estate contracts signed for Manhattan apartments declined 84% last month compared with 2019, according to CNBC, and the number of new listings has fallen 71% as sellers decide to keep their properties off the market until the city starts to reopen.
Whether the move away from cities is temporary or long term, condo developers are taking note. National builder Toll Brothers has said it will pause its development of its luxury condo properties in city centers. The company will sit on land earmarked for future projects for Toll Brothers City Living, its urban development division, including parcels in New York City, Seattle and Philadelphia.
“In the short term we’re going to be very cautious,” said CEO Doug Yearley in an earnings call last week. The company also announced it had laid off about 600 of its 5,000 employees and furloughed another 600 amid the coronavirus crisis.
In Miami, developer The Related Group is backing away from a proposal to build a 34-story luxury condo tower on Miami Beach’s Terminal Island and instead has proposed a 160,000-square-foot Class A office project. The two four-story buildings would include 11,250 square feet of restaurant space, helicopter pads and a marina, according to RE Miami Beach. The proposal is expected to go before the Miami Beach Planning Board in August.
Despite many companies' pivot to more telework, Jon Paul Pérez, executive vice president of Related, told the Miami Herald that businesses in the Northeast and elsewhere are interested in opening offices in South Florida, fueling demand for such a project.
"This is a one-of-a-kind location ideal for family offices, private equity firms, hedge funds, or even a corporation seeking a stand-alone corporate campus," he said.
The story includes reporting from sister publication Smart Cities Dive.