How Long Will Cities Be Out of Favor?

Over half of the world’s population has moved to cities as urbanization has increased over the first two decades of this century.

But over the past nine months, that trend appears to have reversed, at least momentarily, as people are leaving cities during the COVID-19 pandemic.

The pandemic “struck at the heart of what cities are all about: togetherness, connectivity, shared services and shared spaces,” says Jeremy Kelly, a director in JLL Global Research, in a recent post. 

Yet, Kelly thinks urbanization will continue with big cities attracting ambitious people for work and education.

But things may not look as they did before the pandemic. As companies become more comfortable with their people working remotely, Kelly sees the possibility of “distributed urbanization,” which would entail cities spreading out into networks of suburbs and smaller cities

“Innovation will be crucial to city resilience and success,” Kelly says. “Real estate will continue to play a key role in knitting together successful and emerging innovation hotspots with space that attracts talent, boosts productivity, and encourages collaboration.” 

Julie Whelan, vice president, global head of Occupier Research at CBRE, thinks that if a company has large groups of workers on “the urban fringe,” it may start to set up locations in these areas through flexible space or leasing a suite. But she also says the urban core will provide the best place for workers to gather and collaborate. “We’re very bullish on the urban core,” Whelan told listeners on CBRE’s “The Weekly Take” podcast. 

Many observers still see cities coming back. For instance, Michael P. Feldman, CEO of Choice New York Cos., told GlobeSt.com, New York city will overcome COVID and budgetary issues to thrive in the future.

“I think the question is about whether New York will come back or not is evaporating. It’s more a question of when and how quickly,” Feldman says. 

Others also see strength in New York and other big cities.

While many people think we may be witnessing a long-term shift away from cities, Chris Ludeman, global president, Capital Markets, for CBRE said on a separate “The Weekly Take” podcast that he sees more of a cyclical pattern.

“They attract talent,” Ludeman said. “They attract innovation. They attract capital. And when those three things come together, they’ll be near term disruptions.”

Right now, that disruption is being caused by a pandemic. But the shutdowns resulting from COVID won’t last forever.

“I don’t think that hotels are going to stay empty forever,” said Michael Turner, president of Oxford Properties, also a participant on the podcast with Ludeman. “I don’t think office buildings are going to stay empty forever.”

Another sign of big cities’ resilience: Investors are still buying office assets there. Gateway markets were the most attractive locales for investment sales in Q3, according to Yardi Matrix. The top five markets were: Manhattan ($4.3 billion in sales at $771 per square foot), Boston’s ($4.1 billion at $437 per square foot), Washington DC’s ($3.2 billion at $316 per square foot), San Francisco’s ($3 billion at $1,129 per square foot) and the Bay Area ($3 billion at $431 per square foot.