Maybe Cities Aren’t Headed for a Doom Loop

One of the biggest concerns among investors, landlords, and even the broader business community and governments has been what will happen in big metros because of two factors: office and migration. The fear is that hybrid work will displace even more people from office, adding to long-existing migration patterns.

People would leave even more from the cities, office tenants would make other arrangements, the force of workers no longer coming into the office would upend surrounding retailers, and cities would lose an important tax base. But according to Cushman & Wakefield, things may be improving on the underlying migration issue.

According to the Census Bureau, overall national inter-state migration since 2006 has been fluctuating, from 2.7% in that initial year to a low point of 2.2% in 2010 and then wavering a bit, to the most recently reported 2.4% in 2021. Since 2011, the percentages have been stable within 10 basis points.

Those are national averages. The question for cities is where they sit. C&W says that “while facing challenges, cities have proven to be resilient.”

“After worsening significantly in 2020 and most of 2021, net migration in the six U.S. gateway markets was 17% stronger in 2023 than it was in 2019,” they continued after analyzing change of address data from the U.S. Postal Service. The Census Bureau data is older, even though ultimately there is more detail. The latest metro area-to-metro area migration flows cover 2015 to 2019.

“The pandemic disproportionately impacted urban cores of cities,” the firm wrote. “However, the residential exodus has reversed in most major markets. Net out-migration is now lower in the six U.S. gateway markets than it was in 2018 and 2019. Additionally, after decreasing for five years, international immigration—the key driver of population in large, gateway cities—is back above the 30-year historical average.”

The gateway markets are Boston, Chicago, Los Angeles, New York City, San Francisco, and Washington, D.C. However, the phrase “stronger” is a relatively one. In October and December 2020, the monthly net migrations from the gateway cities were respectively -59,311 and -59,389 — significant collective losses.

As of June 2023, the net outward migration was -23,415. That was a significant improvement, but still a lot of people moving out from those cities.

While vacancy has increased more in CBDs than suburbs — partially due to supply-side dynamics — CBD vacancy is still lower than suburban vacancy in 40% of U.S. markets,” Cushman wrote. “In a hybrid work environment, many occupiers continue to look at centralized, urban office locations as the best option for their workforce.” However, companies have yet to find ways to entice or compel everyone back to the office.