The impact of COVID-19 on the economy is on the minds of everyone–politicians, business owners, and employees alike. The pandemic has forced us all to re-evaluate our priorities, including how we work, play, and plan for the future.
In the investment space, we have seen new trends arise, such as the value of “stay-at-home stocks” for companies such as Amazon, Home Depot, and Etsy. These are companies that make it easy to shop–and stay entertained–from the safety of our homes. But there are other significant investment trends beyond Wall Street that have caught the attention of thousands of investors: commercial real estate.
What Are 18-Hour Cities?
Even in the face of economic uncertainty, we are seeing investments leaning toward the long-term prospects of second-tier markets, also known as 18-hour cities. These include Dallas, San Antonio, Nashville, Portland, Raleigh, Charlotte, Salt Lake City, Jacksonville, Columbus, Minneapolis, Boise, Phoenix, Kansas City, and Baltimore.
What are 18-hour cities? Per Investopedia, “Unlike the biggest cities, most [18-hour cities’] services and amenities don’t operate on a 24-hour basis. However, they boast comparable advantages, including solid public transportation systems, modern infrastructure, and strong economies. Housing prices are moderate in comparison.”
Prior to COVID-19, the job and population growth for these cities was above the national average and was supported by a diverse employment base. Compared to metros that have a strong reliance on the service industry, we believe these markets stand a better chance of bouncing back quickly once the health concerns of the coronavirus are under control.
Eighteen-hour cities are known for being more affordable and having strong job growth potential. Yet they are a little bit quieter than New York, Los Angeles, San Francisco, and Chicago—locales that command top-tier, institutional capital. As such, these cities can provide a big boon for individual investors.
With people home more than ever, remote operations have opened new doors—and considerations—for those who don’t need to be in megacities. More people working remotely means reevaluating where and how they’re living. For those staying in high-priced San Francisco because they’re employed at a red-hot, Silicon Valley startup, all of a sudden, they don’t have to live there anymore.
Just recently, podcast provocateur Joe Rogan announced that he’s leaving his home base and work headquarters in Los Angeles and instead moving to Texas due to overpopulation, traffic, economic despair, and his need for “a little bit more freedom.” Rogan likely realized that even though he inked a watershed $100 million deal with Spotify, he didn’t have to be tied to the entertainment capital of the world to maintain his hit show.
As a better quality of life quickly becomes more desirable, second-tier real estate markets meet the criteria. But with many working remotely temporarily, what does this mean for office space in the future?
The Future of the Workplace
One of the biggest questions in commercial real estate is: “What’s going to happen to offices moving forward?”
In July, Google extended its coronavirus work-from-home order until the summer of 2021 to give its 20,000-plus employees the ability to plan ahead. Google was a first mover on this front, and we expect many companies, big and small, to follow suit as health and safety carry just the same weight as productivity.
I believe that most companies will return to offices once it’s safe to do so. But due to social distancing guidelines becoming the new norm, employees are going to demand more space–there’s no way around it. Office structures will look a lot different as buildings are reconfigured to accommodate check-in stations and health-first environments.
There is going to be a change in amenities and the required space per employee. There will likely be less demand for small conference rooms with closed doors and more demand for socially-distanced working configurations, which will pave a path for bigger spaces. The shifts will mean less operating cubicles and trickle all the way down to the reevaluation of HVAC systems, which will likely need redesigns for better air filtration.
Will companies decide that remote working is efficient and ultimately pass on office space altogether, or will they adjust and implement newer looks?
There is a difference between working from home and working remotely. Those who work remotely may still want a professional work environment every day and to maintain some semblance of an office for access and meetings. There’s a need there, but co-working spaces will have to change too—their previous motto of matchbox-like locations with dense space won’t work.
Are 18-Hour Cities Best-Positioned to Survive Pandemic?
The pandemic has impacted several trends. Shifts and disruptions seemingly occur every week.
We’ve seen Wall Street whipsaw down and now back up as the coronavirus reared its ugly head—and continues to impact all of our daily lives. The market is back to record-setting highs, but who knows what will happen months from now. There could be more panic, and people could pull their money out.
The economic impacts and changes caused by COVID mean investors need to consider diversification high priority. That’s what makes commercial real estate investment opportunities in 18-hour cities so tantalizing—you can find great deals in high-quality locations in an investment amount that suits your portfolio. And since it’s a passive investment, you don’t have to be a landlord or manage rental properties.
As markets regain their footing, we believe there will be an acceleration of the trends in place pre-coronavirus: namely, the growth of 18-hour cities that were already attracting people. Thanks to the quality of life and good employment opportunities these areas offer, they’re outpacing many primary markets.
Join the discussion below.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.