The pandemic has left some cities empty, while others are in full bloom. The most common trend is a migration from large, urban centers (like New York City, which has seen a grand exodus with the highest number of vacancies in over a decade), to smaller, more spaced out parts of the country.
This pandemic-fueled boom of the real estate cycle is clearly because people are turning away from large, congested cities and into sprawling properties in much smaller cities (even towns), from those by the ocean, to homes in the middle of the desert.
With public health officials advising citizens to avoid crowds and indoor gatherings, and to be diligent with social distancing, it makes sense many are moving to more spacious locations to better serve their own health and the country at large.
According to Marco Santarelli, the CEO and founder of Norada Real Estate Investments, many are first-time millennial buyers entering the market.
“The main challenge for markets is meeting this upsurge in demand with a declining supply,” he wrote.
Indeed, 2020 was a record-breaking year for the housing market in the U.S. According to Santarelli, home values rose 8.4% from the previous year. Over five million homes were sold in 2020, which was up 5.6% from 2019 (the most since before the Great Recession, according to NAR chief economist Lawrence Yun). And according to a recent report from Statistica, almost a million more properties were sold this year than in 2020.
Commercial real estate, too, has seen a shift. According to the International Monetary Fund, in 2020, hotels and retail spaces suffered the most, while industrial spaces are suffering the least since the pandemic started in the western world.
While some experts predict city living will see a renaissance in the coming year, here are some of the top cities and areas seeing a real estate boom and best cities for real estate investment in 2021 — so much, that many are selling above asking price.
Many New Yorkers are moving to Miami, especially Miami Beach. This boom is fueled by outdoor activity and sunny weather, more than usual. Miami Beach is where some of the most expensive homes are based, valued at upward of $10M, including the nearby islands of Indian Creek (a private residential island for multi-millionaires) and Star Island, a celebrity favorite along Biscayne Bay. It also is seeing a boom in Coconut Grove.
It isn’t just home sales, but development projects of super McMansions geared toward luxury clientele (locals would rather see them move to Tampa). According to Miami realtor Audrey Ross, the market boom is across South Florida.
“The inventory is lower than it has been in recent memory and in the above five million market, the price per square foot is higher than it has been in recent memory,” said Ross. “Due to the pandemic, buyers from the densely populated cities like New York City, Chicago and Boston, and are seeking to move out of the apartments that are confining and into sprawling homes on the water in sunny Florida. It doesn’t hurt that the tax structure in Florida is far more welcoming to the ultra-wealthy than it is in California or New York. Some of these very luxurious homes are even being sold after the buyer has only had a virtual tour, literally the personification of buying without being there.”
Bankers see the investment comeback in Miami as “encouraging,” according to U.S. Century Bank CFO Rob Anderson, who says their first quarter loans in 2021 were up 6% from last year’s fourth quarter.
“Business in Miami-Dade and the South Florida market are rebounding quite nicely, [and] we see just general commercial real estate lending picking up across the board,” he recently said.
One realtor referred to Portland’s increasingly competitive housing market as “insane,” as some homes are going for even $100,000 over the asking price (with some clients offering cash up front). There’s roughly 20 people lining up for every house, said Carrie Morton, a realtor with Windermere. The average home in Portland has now skyrocketed to $542,000, with one realtor saying the influx is greater than the exodus. To Suzanne Page, a broker with John L. Scott Southwest Portland, the market isn’t slowing down anytime soon.
The market in D.C. is the highest it has been over the past 15 years. According to one local listings agent, Marian Rosaaen, a home selling for $624,500 got 54 offers. Compass Real Estate Vice President Michael Moore calls it “a spring market on steroids” in areas like Bethesda, Alexandria and beyond.
Others see it as an opportunity to flip a property for profit, as there’s an increase in demand from buyers and sellers (many who want larger homes).
“In 2020, I had more $2+ million buyers than I’ve ever had in my career. I’ve had more $5+ plus million buyers than I’ve ever had in my career,” Mike Aubrey, a senior vice president and realtor with Compass, recently said. “And I think that’s because there is a move to this idea of having a destination property.”
Across the greater Cincinnati area, hot real estate deals are going as quickly as 17 days on the market in this affordable region.
“I had no idea that this home in particular would drive this much traffic,” said one homeowner who recently listed his house.
Cincinnati home prices are up 20% this year.
According to Archie Brown, the president and CEO of Cincinnati-based bank holding company First Financial Bancorp, which specializes in commercial real estate, the vaccine distribution is helping boost the local economy.
“The unprecedented fiscal stimulus and an accommodative Federal Reserve have led to widespread optimism for our economy, which is in stark contrast to our sentiment at this time last year,” he said. “Our first quarter operating performance reflects this change in sentiment and we have renewed optimism as a result of the improved business climate, despite an operating environment that presents challenges due to very low interest rates and muted loan demand.”
Austin has become a hot spot for commercial real estate investment, mainly due to out of state corporate relocations, especially for tech firms. Mike McDonald, vice chairman at Cushman & Wakefield, specializing in pension funds, recently told The New York Times that “it’s the hottest market in the country right now,” adding that “investors are following companies.”
The nearby city of Dallas, too, is also one of the hottest markets for commercial real estate, mainly due to investors preferring smaller markets like Dallas and Austin, over mega-cities like New York City and Los Angeles. Meanwhile, in nearby Houston, the available office space is increasing, at roughly 31.6% of its total spaces.
6. Rural California
Small towns (micro towns), like Wonder Valley, just outside of Los Angeles, are seeing a boom in buyers (one recently sold for $50,000). Thanks to the homeworking revolution, there’s rarely the need to drive into the city, making families and professionals live in huge acre-sized properties in the desert, with rare trips to urban centers. Among the small California towns seeing a boom in real estate, there is southwest Riverside County (one realtor, Adam Bouvet, said that homes are getting over 50 showings and offers within hours), while in Marin County, sales were up 50% over the past year.
According to a recent survey from Allen Matkins, a law firm that partners with the University of California’s management school for a bi-annual survey, it’s a mixed effect in California. Office developers are taking a “wait and see” approach, while industrial properties are bouncing back with optimism. The multifamily market is mixed.
“Superbly located, first-class office projects, whose target tenant base consists of companies that are in industries poised for growth post-COVID, have proceeded with entitlement and construction,” said Crystal Lofing, a partner at Allen Matkins.
According to the Allen Matkins report, California developers still have mixed views. Survey participants are confident about the growth in demand for office space between 2020 and 2023, but are pessimistic about the return to investment in new spaces. One thing is for sure: Retail is down, with 58% of developers saying they don’t plan on developing retail over the next year, while more warehouses are up, expecting for more to be built over the next three years.
Among the biggest commercial real estate changes in the state, Netflix is increasing its presence, having opened a recent office space in Burbank, while a retain center in Los Angeles recently sold for $58 million. There’s hope for residential, too: Cityview began a $125 million development near downtown LA with 300 units, called Adams & Grand.
The Big Picture
Could an overheated economy prompt inflation? According to one economist, Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, the economy will continue to grow throughout the fourth quarter of 2021.
“I would worry about a housing construction boom or a commercial real estate boom. I would worry about a significant increase in leverage across the economy,” Edelberg recently told the Orange County Register.
“On another dimension, if financial markets start to view overheating as being too permanent, we could see inflation expectations rise to worrying levels, well above the Fed’s target,” said Edelberg.
She added: “Still, everything I see in terms of underlying economic strength, households’ resources, and the fiscal support in trains points to a several-quarter-long surge in the economy. We, the policymakers, households, businesses, need to appreciate its temporary nature and adjust accordingly.”