Rebirth of a City: Why Primary Markets are Primed for Revitalization

ada Partners, Seattle, San Francisco, Los Angeles, Gensler, Peterson Institute for Economics, National Bureau of Economic Research
Courtesy of Simone Hutsch

By Ryan Swehla

5 predictions on the far-reaching impact of pandemic cultural shifts

Primary markets are primed for revitalization, and this is directly correlated to many individuals and families having the freedom to live where they want. 

This is a trend we have been tracking since the pandemic started. While our firm Graceada Partners is focused on investing in California’s Central Valley, we keep close tabs on what is happening in San Francisco and other primary markets across the U.S.

We’re already seeing a shift happening in major cities. It’s been more than a year since the start of the pandemic, and some of the rush to leave big cities is over. In fact, major markets are witnessing a resurgence. Rents are trending upward after major drops in markets like San Francisco. 

Secondary markets aren’t cooling down either. While people have left big cities, others are flocking to major markets for the opportunities they can’t get elsewhere. Secondary markets that provide value to residents continue to boom too.

Here are five broad predictions that stem from a shift in primary markets and the rebirth of the city. These will impact the commercial real estate market across the West Coast and nationwide, pointing to how major markets can thrive now and after the pandemic.

Apartment owners that create workspaces will thrive

Many companies will likely continue to offer a hybrid work model where workers can sometimes work from home depending on task or work function. In an urban environment, this may sometimes be difficult, particularly for someone working in a studio or small one bedroom apartment (or multiple roommates sharing a living space).

That is why we anticipate the rise of multifamily dwellings that offer a flexible workspace within the complex. Some already offer this, particularly in high-rise apartments with a lot of amenities, but we expect landlords and developers to adopt this on a larger scale.

People in urban places still want space at times—they need a spot to focus and work away from others or simply in a space that isn’t where they sleep. Apartments that offer this may witness lower vacancy rates and charge a premium for that type of space.

Companies that embrace intentional office work will be the real winners

Culture can happen anywhere, but it starts with people functioning as a cohesive unit. An intentional plan for how to embrace their office space—and create a culture that can be in sync from anywhere—will help companies embrace some of the positive findings of remote work while acknowledging the benefits of in-person creativity, innovation, and team building.

Building culture is a core of business growth. Peter Drucker famously said that “Culture eats strategy for breakfast.” That continues to ring true. A company can have the strongest strategic plan, but its efficacy will be held back by team members if they don’t share, or have access to, the right culture. 

A 2020 Gensler report illustrates that people in high-performing offices choose to work in an office versus remote work. However, those in lower-performing offices prefer to work remotely. That speaks directly to culture and/or the challenges with building and maintaining it.

Companies that create high-performance offices, even those that maintain a hybrid model, will come out on top. They will have factored in the benefits of remote work and understand how to produce a seamless experience that puts culture first.

A resurgence of entrepreneurship

Americans started 4.4 million businesses in 2020, a 24 percent increase from the year before, according to the Peterson Institute for International Economics. It is by far the biggest gain on record.

We think there will be a continued resurgence of entrepreneurship that extends beyond the pandemic for several reasons. 

First, people are more flexible in how and where they work. The opportunity to be working on your own may encourage some who have been tethered to an office structure to take a second look at a business opportunity. Additionally, people who moved from primary markets to a different place may have a new outlook in a new city. They too may catch the entrepreneurial bug in a vibrant new place.

And a larger pool of people has the opportunity to branch out on their own. A recent National Bureau of Economic Research study shows that Black-owned businesses in above-average income neighborhoods sprang up faster than other businesses did during the pandemic. The study cites one reason for the growth of Black-owned businesses is a recent focus to support those businesses, including banks reaching out to support Black entrepreneurs in new ways.

Cities with low employment or housing opportunity will stagnate

In a post-pandemic world, people are increasingly opting for quality of life, community and opportunity for growth. Cities that score low in those areas will not attract people, whether they are primary or secondary markets. Without showcasing an in-demand lifestyle (i.e., art, food and culture) cities will have a tough time attracting new flexible workers. Cities that don’t emphasize quality of life—or those that don’t show real improvement—could feel the long-term impact of COVID-19 via economic stagnation. 

Both primary market and secondary markets need to make their case to an increasingly untethered workforce. If they don’t, they will find themselves struggling to recover from the impacts of the pandemic.

People who left big cities won’t be returning

While we do think primary markets will witness a recovery and rebirth post-pandemic, we want to be clear: Secondary markets are continuing to witness explosive growth. According to Redfin, top destinations include Sacramento, California; Las Vegas; Phoenix; Austin, Texas; and Atlanta. Other markets are witnessing growth and will continue to well after the pandemic subsides. And most of the people who left are not going to come back anytime soon.

Most moves involved a sense of certainty: People bought homes and established roots. Others left primary markets and were already feeling the desire to move even before the pandemic. COVID simply amplified it and they were able to make a move because their job turned remote.

This is not to say there won’t be anyone who doesn’t have second thoughts about leaving San Francisco. But the reality is that when someone goes through with a big move, they are unlikely to move back (or make another move in the near term) unless they find affordable housing, good job opportunities, and a greater sense of community and culture elsewhere.

While most who left won’t return, we still anticipate major cities to witness a rebirth. How so? There are millions of people waiting in the wings to embrace big cities. They are living in places with a lower quality of life and less opportunity. Now, they see a prime opportunity to be part of a major city. The ability to grow and advance in a major market is too big to pass up for many people looking for a foot in the door. While people are leaving markets, we expect the net exit to fall substantially in places like San Francisco as people take advantage of lower rent prices and face time in culture-strong offices.

While some pre-pandemic city dwellers may have left and will never return, there are plenty of others waiting in the wings to live in some of the most iconic cities in the world.

 About the author:

Ryan Swehla is the Co-founder and Principal of Graceada Partners, a real estate investment firm based in Modesto, California. Swehla leads the firm’s investment activity, providing strategic direction and overseeing capital sourcing for their assets. Founded in 2008 during the Great Recession, Graceada Partners now has over $500 million of assets under management.