"The Work from Anywhere"

By Andrew Dealy, Managing Partner

We've written previously about how the pandemic accelerated a migration from cities to the suburbs as both buyers and renters have sought more space, privacy, and security when making housing decisions this year.

Already expensive suburbs surrounding major markets like San Francisco and New York experienced a surge in demand since they were the first logical choices for those city dwellers with the financial means to relocate on short notice. At the same time, many young professionals who weren't ready for a suburban lifestyle started looking to secondary cities for greater value once their companies became less restrictive on remote work.

Many residents of those primary markets were already disillusioned by soaring housing costs and the effects of COVID-19 were just the latest reason to consider other cities. It's one thing to pay $5,000 for a one bedroom in the West Village when you can enjoy New York's restaurant and nightlife scene, but it's an entirely different proposition when all recreational businesses are shuttered indefinitely. Density and a reliance on public transportation also became a liability rather than an intended benefit of city life.

Another factor apart from those value and safety concerns was that employees of tech companies and big banks, in particular, were no longer tethered to a campus or skyscraper and could suddenly 'work from anywhere.' Opportunistic employees waited a few months and then started to rent houses in vacation towns and other smaller cities that provided a respite from those urban cores with high infection rates. While some undoubtedly left on a temporary basis, data from moving companies and real estate search engines indicates that the most expensive cities will lose residents to more affordable, tertiary markets.

According to United Van Lines, move out requests from San Francisco and New York to any destination were up 23% and 45%, respectively, versus the same period in 2019. And in San Francisco specifically, Apartment List reported that the share of users interested in moving to a secondary city increased by 9% compared to pre-pandemic levels. Statistics like that sent real estate professionals scrambling to figure out where those people were headed and cities such as Austin, Dallas Fort-Worth, Denver, Nashville, and Raleigh found themselves among the top destinations.

Those cities had already been attracting development under the premise of cheaper land and labor, as the share of multifamily investment into secondary markets hit 60% each year for the last five years. Transplants continue to follow that development in increasingly large numbers, citing cost of living and outsized job growth from corporate relocations in making their decisions. And the impact of COVID-19 on the housing and labor markets presented mobile young professionals who were previously hesitant to move with a built-in savings plan in the form of a housing swap.

SCM was focused on cities such as Minneapolis, Nashville, and Dallas Fort-Worth prior to the pandemic in response to the growing affordability crisis in major cities and we're doubling down on that strategy now that the American workforce is more flexible than ever. We have little interest in competing in saturated markets with barriers of entry so high that one disruption in the global marketplace can sink an entire project.

Instead, we're investing in emerging cities that utilize strong employment metrics to attract families and professionals that are looking for more value when it comes to choosing where to live. There's no telling if or when real estate in places like San Francisco and New York will return to 2019 levels but we're confident that our projects will benefit from the amount of people that have already relocated to secondary cities this year.

Andrew Dealy, Steel City Management