GHC Thematic Report: Has Covid-19 Transformed Rental Markets in the Suburbs?

Following the effects of the COVID-19 pandemic and ensuing economic fallout, property markets across the U.S. have seen an uncharacteristic decline in terms of rental prices. 

At a national level, rents dropped 1.3% between March and June. This is in contrast to the previous three years when rent prices rose roughly 2% during the same period, a period known as the “summer surge” when many families move (since kids are out of school) and recent graduates flock to cities.

As people took care to shelter in place early in the year, this resulted in a major reduction in the amount of people who were moving or relocating, which drove prices down across the board. 

After a nationwide slowdown, however, rental prices are slowly starting to recover and demand for rentals is once again gaining momentum—but not everywhere.

In a recent article by Bloomberg CityLab, research shows suburban rents are outpacing city rents in 27 out of 30 major metros. Overall, average rents in 30 core cities have dropped more than 5%, while average rents in the suburbs of those cities have inched up half a percentage point.

Unlike major cities—such as San Francisco, Boston, and Seattle—where the bottom appears to be falling out for rents, metros like Charlotte and Cleveland have not suffered the same acute drops in rent. Rather, rental prices in the surrounding suburban communities in these metro areas are actually rising.

In Charlotte, for example, average city rents have fallen between January and September (-2%), while rents in the suburbs have increased (5%). Cleveland, too, has witnessed an upswing in monthly effective rent in nearly all the region’s submarkets according to a report by Berkadia, permitting the metro average to appreciate 0.7% between June and September, reaching $1,009.

There are several key reasons why rent trends in large cities do not reflect those of nearby suburbs. 

For one, the pandemic’s impacts on everyday life have been much more pronounced in cities than suburbs. Restrictions to businesses and shelter-in-place requirements halted many of the events, services, and amenities that attract people to cities in the first place, such as bars and restaurants, live entertainment, and public festivals.

Record low interest rates and severe housing shortages already had many people already primed to leave the city. The pandemic merely gave them a push, making it difficult to forecast whether this migration will continue to fortify or slow down.

According to an article by Forbes, “It’s less a mass urban exodus and more a redistribution of the people who would normally be flowing into these places for the jobs and amenities.” 

Nonetheless, this trend shows the growing appeal of suburban areas on the outskirts of metros in places like Northern Ohio, where residents seek a high quality of life at an affordable price. In the next year or two, it is likely that the effects of COVID-19 will accelerate more moves to the suburbs while city vacancies continue to increase.