Professionals have been moving from cities to suburbs for years. The Covid-19 pandemic, however, accelerated the trend. Suddenly, the percentage of people working remotely at least five days per week jumped from 17 percent to 44 percent. Now, more people are reconsidering where they live and why they remain there (the typical home price in San Francisco is about $1.5 million).
As more professionals in cities like San Francisco and New York started working remotely, they realized they would prefer living in suburban areas with lower population density than urban communities. New York City was hit hard by the pandemic, so it makes sense that people capable of moving would choose to do so. In San Francisco, many people have chosen to leave because they can find cheaper homes away from the city.
As suburban areas grow, developers will pour more money into residential neighborhoods. The growth in suburban areas will also impact suburban commercial real estate. The following sections explore some likely ways that suburban commercial real estate will respond to changes in the local population.
Struggling Property Owners Will Want to Sell Their Suburban Commercial Real Estate
Some types of suburban real estate will recover faster than others. CBRE Group predicts that office spaces and apartment buildings will reach their pre-Covid values around the beginning of 2022. Industrial properties never lost any value. In fact, their values grew during the pandemic and will probably keep doing so for the foreseeable future.
Retail space is a different story. Retail commercial properties took a serious hit in 2020 and 2021. By the beginning of 2021, retail spaces had already lost about 10 percent of their value. They may not reach their pre-pandemic level until 2024.
Assuming that these projections are accurate, many retail property owners will struggle to make ends meet. If brick-and-mortar retail stores cannot improve their revenues quickly, they will find it difficult to pay their leases. Mall and retail center owners might try to work with tenants to keep them in place. Eventually, owners will run out of money and patience. At some point, they will need to find new businesses that can pay full rental prices without missing payments.
Some owners of suburban commercial real estate will accumulate debt, motivating them to cut their losses and invest in other opportunities. When they sell, real estate investors can purchase the properties at low prices.
Potential buyers who approach property owners early will have the chance to develop relationships and make offers that benefit both parties. The current owner gets to unload the property and avoid growing debt, while the new owner gets to purchase retail space at rock-bottom prices.
ProspectNow’s predictive analytic tool will give you an upper hand by helping you determine which owners are likely to sell in the near future. Reach out to struggling owners before your competitors have a chance.
More People Means More Opportunities for Building New Commercial Centers
Shifting populations force the construction industry to adjust its approach to choosing sites. For the last few decades, developers have relied on a mixture of urban and suburban construction projects.
Salesforce Tower stands out as a major construction project for urban San Francisco. Completed in 2018, Salesforce Tower is the tallest building in San Francisco. Boston Properties, the tower’s owner, intends that space will attract high-quality companies that need access to updated IT infrastructure. The approach made a lot of sense in 2018. It seems like a questionable plan in 2021 as more businesses embrace remote work and look for new ways to save money.
If more people move to the suburbs, development projects will follow them. The next decade could bring a renaissance of suburban commercial centers. Companies may also realize that moving to suburbs lowers their expenses and shortens commutes for employees who continue working in their offices.
It’s impossible to know exactly how people and developers will respond to emerging trends in population movement. At the moment, it looks like more people will choose to live in the suburbs. That probably means developers will build new commercial centers to meet consumer needs.
Commercial Property Will Eventually Become More Expensive
The future prices of commercial properties located in the suburbs will depend on several factors, including whether the government invests in the infrastructure and social capital needed for economic growth.
Unfortunately, McKinsey & Company reports that infrastructure spending as a share of GDP has been shrinking since the Great Recession. The U.S. federal government would need to spend about $2.1 trillion just to make up for falling investments over the last decade.
Improving and adding to existing infrastructure would likely increase the value of commercial property in several ways. Better infrastructure could boost values by:
- Giving employers access to high-speed internet access in areas far from city centers.
- Making it easier for consumers to visit retail stores as the population density of suburbs grows.
- Improving safety for drivers, pedestrians, and cyclists.
- Streamlining supply chains to keep items on store shelves.
Without government intervention and spending on infrastructure, it could take a decade or longer for suburban commercial spaces to become more valuable. Assuming that the economy recovers and people start spending more money in person, though, property owners can earn steady revenues from tenants.
Eventually, suburban commercial real estate will become more expensive. There are simply too many factors to know when that will happen. When it does, investors who purchased property at low prices will have chances to sell and earn even more money.
How ProspectNow Can Help You Stay Ahead of Competitors
With so many unknown factors influencing the commercial real estate market, investors need all the help they can get. ProspectNow has been providing reliable commercial real estate data since 2008. The ability to find commercial property investment opportunities, predict when properties will get put on the market, and contact the properties’ real owners—even when the owner is listed as a corporation—makes ProspectNow one of the most useful CRE tools for post-Covid investors.
Start a free trial with ProspectNow to build targeted lists, generate more leads, and pinpoint revenue-building opportunities before your competitors. No matter how the real estate market evolves, someone will make money from the changes. Improve the chance that you are one of the people who profit by accessing ProspectNow’s database and CRE tools.