The past two years since the outbreak of Covid-19 redefined the U.S. property market, most likely in a permanent way.
PwC and Urban Land Institute (ULI) enumerated several key trends for 2022 such as emerging markets being far from coastal areas. It ranked the real estate sector of Nashville as the most promising market based on “overall real estate prospects.”
Nashville outranked most metro areas, both first- and second-tier cities, largely due to investment opportunities.
A fast-rising economy, younger population and increasing inbound migration also improved investment prospects in the city.
Nashville Emerges As A “Supernova City”
PwC and ULI’s survey gathered responses from 1,200 industry insiders and professionals. This year’s edition included Supernova Cities, which are new markets that rose into prominence because of tremendous growth.
Based on a property investment perspective, Nashville transitioned from an 18-hour City into a Supernova City because of two reasons:
- A growing population with more Gen X-ers and millennials
- Job growth linked to more employers moving to the city
Inbound migration significantly improved the investment prospects for 18-hour Cities. Despite becoming more expensive over the years, mid-size metro areas still lure individuals and employers.
The survey listed “development opportunities, lifestyle and workforce quality” as the reasons behind the continued migration.
The group of 18-hour Cities comprises seven metro areas:
- Charlotte, North Carolina
- Fort Lauderdale, Florida
- Portland, Oregon
- Salt Lake City
- San Diego
Other Supernova Cities for 2022 included Austin; Boise, Idaho; Jacksonville, Florida; and Raleigh/Durham, according to the survey.
Austin and Raleigh/Durham also joined Nashville among the fastest-growing cities that attract property developers and investors.
The 10 Markets With The Best “Overall Real Estate Prospects”
- Raleigh/Durham, North Carolina
- Austin, Texas
- Tampa/St. Petersburg, Florida
- Dallas/Fort Worth, Texas
Remote work during the Covid-19 crisis singlehandedly convinced more people to live farther from central business districts.
For this reason, investment-magnet cities for 2022 stood on equal footing with first-tier cities such as Boston and Seattle, according to the survey.
As working from home became necessary during the pandemic, more people enjoyed the flexibility of choosing their residences. The survey identified flexibility as one key reason for the increasing allure of mid-size cities.
More People Are Fleeing First-Tier Cities
The Great Relocation—a phenomenon similar to the Great Resignation—seems likely as remote work looks like it’s here to stay.
More Americans have moved to suburban areas where the cost of living is cheaper. The survey cited IHS Markit’s forecast for Nashville’s population reaching 2.05 million people by the end of 2022.
As of April 2020, the U.S. Census Bureau estimated more than 689,000 residents in the Nashville-Davidson metro area.
The inbound-migration trend would eventually cause higher home prices not just in Nashville but also in other key secondary markets, according to the survey.
For instance, several local market respondents in Nashville believe that there’s a strong investor demand and above-average development/redevelopment opportunities. The survey linked potentially higher home prices to these attributes.
An influx of skilled employees into secondary metro areas during the pandemic would also inevitably lead to more expensive properties.
Commercial real estate in Nashville could benefit from the regional shift as well.
Market observers expect employers to move from “gateway markets” into secondary cities. Aside from Nashville, several companies would continue to prefer Austin, Charlotte, Miami and Phoenix as alternative areas.
As skilled employees seek cheaper costs of living, employers also want to chase those individuals. At the same time, those companies want to maximize revenues by doing business in lower-cost metro areas.
While property prices in first-tier cities such as New York City continue to rise, it won’t take long before second- and third-tier cities catch up.
Home and rental prices in secondary and tertiary markets have surged much faster because of more people leaving gateway markets.
Secondary Metro Areas Have Outshined Large Cities
Gateway markets such as Boston, Seattle and Los Angeles still provide viable real estate investment opportunities. The rapid growth of secondary markets, though, overshadow investment prospects in gateway cities.
The Covid-19 crisis further incited much of the noticeable regional shift. Residential property prices have increased even before the pandemic, but abrupt changes since 2020 seemed like the final straw.
For instance, 55% of the survey’s respondents disagreed that the U.S. property market will return to pre-pandemic activity in 2022.
The pervasive skepticism means that the “new normal” would continue, coinciding with an exodus from the eight priciest coastal markets:
- Los Angeles
- Manhattan, New York
- San Francisco
- San Jose, California
- Washington, D.C.
According to the survey, the eight property markets’ declining popularity among investors began in 2019. A second-tier city has outranked the coastal markets based on overall prospects since then.
A lower cost of living in secondary metro areas—particularly in southwestern states—became the key selling point for more investors.
Only Boston and Seattle joined the top 10 cities for 2022, and these two landed on the bottom rung.
How does PwC and ULI’s survey align with perspectives in the luxury real estate market? Get a copy of Forbes Global Properties’ latest report to find out more.