Ryan is Co-Founder and Principal of Graceada Partners, leading investment activity and heading up the asset management division of the firm.
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Immediately following the Covid-19 lockdown were mass layoffs and furloughs that impacted millions of Americans. People fortunate enough to keep their jobs and work from home had a different experience. Many have embraced a kind of new normal, working from home for months. For some, remote work provided an opportunity to move away from the congested city and the prices that follow.
A flexible, work-from-home schedule has given employees a freedom they never had before: to live wherever they want. They no longer need to live minutes from the office. As a result, primary markets such as San Francisco, Chicago and New York have experienced an outflow of residents, while smaller markets are seeing a rise in interest from real estate investors. Smaller, destination cities are drawing in remote workers because of the attractive cost of living and the amenities they offer.
Based on my company’s analysis, here are three secondary market cities that are poised to draw the growing crowd of location-independent professionals during and after the pandemic.
1. Sacramento, California
Located just an hour and a half outside San Francisco, Sacramento is a desirable area for relocation, especially for a family. The midsize city is known for its affordability compared to other California cities, as well as its culture, entertainment scene and education system. Sacramento is also an intriguing city for companies looking to expand. Compared to more expensive West Coast cities, Sacramento offers a lower cost of conducting business, along with a more affordable employment base.
Sacramento is witnessing robust growth, and we’re not seeing signs of things stopping. In fact, median rent prices in Sacramento for a studio apartment were up 16% year over year in September, while rent prices for a studio in San Francisco dropped 31% over the same period, according to a Realtor.com report. Home prices have gone up, and inventory is decreasing rapidly. An increase in population in Sacramento, increasing at the second fastest rate among California’s top 10 largest cities, has had a positive impact on its economy and makes it a desirable option for relocation.
2. Nashville, Tennessee
Ranked a top-10 fastest growing city in the U.S by Forbes in 2018, Nashville is slated to continue growing years after the pandemic ends. This is partly because Nashville is coined the “Music City” due to its booming entertainment industry. Nashville has been the go-to city for aspiring musicians for years, but now it has caught the attention of tech workers, homeowners and young adults looking for more affordable options.
Some of those who have always dreamt of living in Nashville finally can because of companies’ decisions to make remote work permanent. Nashville has experienced a large growth in population and is among the secondary markets primed for young professionals who are attributing to and supporting its economy.
3. Salt Lake City, Utah
Because of a growth in tech startups in the region, Salt Lake City is becoming a kind of hub for the tech community, a place in the West that doesn’t come with the affordability issues of the Bay Area. According to Moody’s Analytics, Salt Lake City is ranked among the top metropolitan areas that will recover quickly from Covid-19 due to its highly skilled workforce and position as a tech hub.
One of the reasons Salt Lake City is so attractive to people looking to relocate is because the city is going to great lengths to accommodate its residents. There has been a surge in real estate development in Salt Lake City as an attempt to bring more residents into downtown. It’s also in the top quartile of states with regard to the affordability of property taxes.
What The Future May Bring
Commercial real estate investors are picking up on the trend toward secondary markets and are starting to take advantage of it. For example, one San Francisco-based real estate company just reprioritized millions of dollars of assets into commercial space in Charlotte, North Carolina. Similar to Nashville, this city in the Southeast is on the rise.
Between February and July of this year, 1.5 million people in the U.S. filed temporary change of address requests. That is up almost 27% compared to the same period last year. Permanent moves were also on the rise during that period, up 2% compared to 2019.
It also seems unlikely that people in secondary markets would want to “swap places” with people from big cities. If longtime secondary market city dwellers are content with their current location, there wouldn’t be enough of an incentive for them to move, even if rent prices are down in San Francisco. A recent study from Pew Research Center found that 22% of people either moved or know some that relocated because of Covid-19. With this in mind, other commercial real estate companies may rethink their properties in big cities, and diversify in secondary markets.
The longer the pandemic and its aftermath persist, the more likely that some of the people exiting large cities will make their temporary moves permanent. Having said that, primary markets are the way they are because of the ecosystem they’ve created. Whether it’s the fact that it’s a major business hub or people love its culture and natural beauty (think of the view in a San Francisco high-rise), there will always be a draw to primary markets such as New York and San Francisco — and once the prices are low enough, we will likely witness commercial real estate investors swoop in and return to those major markets.
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