Robots & Renters

Updated: Jan 7


Creative destruction is ingrained in American society, to emerge from a crisis stronger than before. America emerged stronger than ever from the 2007-08 crisis in large part to the technology companies that have become an integral part of everyday life. That technological innovation has prompted plenty of speculation around what the future will look like and what jobs to avoid going forward. But, what will the future of work actually look like? And how will this impact this it impact real estate investing?

A report published by the McKinsey Institute breaks down the future of the workforce. If you enjoy light* reading, check out the 124-page report[1]. If not, we've taken we've have taken the liberty of summarizing what's most important to real estate investors. The insights are as follows: [2]


The US Economy is a Collection of Regional Economies

These regional economies are anchored by dynamic cities. The report states that the top 25 cities in the country were responsible for two-thirds of job growth since 2008.


The Future Holds More of the Same

By 2030, 60% of job growth could be concentrated in the 25 cities and their surrounding areas. Spoiler alert: Nashville is one of those top 25 cities.[3]

Jobs Are Going to Be Automated, But Fear Not

It is estimated that 15 million jobs held by 18-34 year old's could be automated by 2030, but the goal of automation is to enable people to work more efficiently, not eliminate jobs. Additionally, incorporating automation into the workplace will create new jobs to manage the new systems put into place.

“Niche Cities”, Reveal the Blueprint to Success since 2007-08

“Niche cities” have experienced the second highest rate of net-migration (the number of people moving in minus the number of people moving out). Their recipe for success is reputable universities, lower costs of living, and a high quality of life that draws both residents and companies. Examples include cities like Provo, UT, and Bend, OR.

Americans are Moving Less than Before [4]

Generally speaking, Americans are moving to locations similar to where they previously lived. I.e., a technology worker in San Francisco, CA is more likely to move to Boston, MA than Wichita, KS.


What Do These Trends Tell Us About Real Estate Investing?


Companies Are Relocating to Areas with a High Quality of Living and Access to a Well-Educated Workforce

Nashville is a prime example. Compared to other metropolitan areas where technology firms are expanding from, Nashville is less expensive. For example, home prices in San Francisco from April 2009 to April 2019 rose from $715,900 to $1.36 million. [5] Investors should be on the lookout for markets that possess the qualities both companies, and residents seek.

The Strong Will Get Stronger

Healthy real estate markets will continue to have low rental vacancy rates unless they become too expensive. Property values should continue to climb in these markets. That continued stability comes at a price. Lower tier markets must either become a more attractive place to live and do business in or slip further into irrelevance.

Since the initial writing of this post, it would be an understatement to say that a lot has changed in the world. Just a year ago, few would have imagined our new everyday realities of our couch serving as our office or having virtual happy hours. The Covid-19 crisis has fundamentally changed how we have lived, worked, and played since the beginning of the year and seems to have the staying power to continue for the immediate future.

Although it might have felt like the world was on pause (and still is), there has been a lot of activity going on as it relates to the future of work and real estate investment. Mortgage rates have hit record lows enabling more individuals to explore purchasing a home, using equity to upgrade an existing home or possibly even purchase rental property. Companies have announced massive shifts in both temporary and permanent work-from-home policies. All the upheaval and uncertainty have not kept down new insights and trends from forming.


What Trends Have Emerged from the Covid-19 Crisis?


Working Remotely is Here to Stay

A survey of over 300 CFOs revealed that almost 3 out of 4 CFOs plan to move at least 5% of their current in-person staff to working remotely full time.[5] This might not be as drastic as others have projected but will likely be part of many company structures moving forward.


The Covid-19 Crisis Has Increased the Relocation to More Affordable Areas

According to Redfin, the 2nd quarter of 2020 had a nearly 10% increase of individuals looking to relocate to a metropolitan area in another state. Seven out of the top 10 cities were in states without state income taxes. Nashville came in at #9 for largest increase of out-of-state home buyers. [7]

Consumer Demand Shift

With lockdowns going into effect across the country, consumers have no longer been able to take advantage of previously attractive amenities and features. Two major trends to emerge are renters desiring to have larger spaces to ‘potentially quarantine within’ or to relocate to the suburbs altogether. [8]


What Should Investors Be Looking for With These Emerging Trends?


Areas that Will Benefit from More Flexible Location Policies for Workers

As mentioned before in the McKinsey Report, the top 25 cities by 2030 could be responsible for 60% of job growth. What cities are poised to solidify their spot in that list or move into it? What places will workers who have the flexibility to work remotely, be looking to relocate to?

Assets that Offer the Right Features for Tenants or Can Be Improved to Offer Them

One example of this is in the multi-family space. Across the country, CBD Studio apartments have seen nearly 8% Year-Over-Year rent declines while suburban apartments are roughly 1% off last year’s growth numbers. [8] What other trends like this will continue to come to the surface with tenants and consumers’ change in preferences?


Opportunities that Will Arise from the Influx of New Suburban Residents

How will the supply and demand be altered in the communities these new residents are moving to? What real estate or business needs will arise? As residents transition from the densely packed urban core, will there be any planning or development changes they bring to the suburbs?


We're not only optimistic about Nashville but the entire Middle Tennessee area. Nashville’s blend of affordability, quality of life, skilled workforce, and emphasis on education will continue to make it a dynamic and growing city that is attractive for both investors and renters.


Joseph High is a Junior Broker and Real Estate Analyst at The Property Management Connection (PMC). PMC leverages technology to offer landlords peace of mind. Their knowledge helps property owners earn the best return on investment by minimizing the time rental units are vacant, recommending improvements that will result in higher rental rates, and advising owners when it’s time to grow, diversify, or liquidate a portfolio of properties.


To learn more contact Joseph High

joseph@pmcnashville.com

(913) 549-0175


(This article was originally published by PMC on August 2, 2019. Due to the impact of Covid-19 it has been updated and re-released.)


CRE615 is a networking group and educational platform for Nashville's next generation of commercial real estate professionals. To learn more visit www.cre615.com