Over the last 20 years, people have moved to the urban core, favoring proximity to restaurants, theaters, work, and friends. Under the lens of a pandemic, however, those benefits have become hazards. So far, evidence shows that COVID-19 is hitting densely populated areas harder. The same clustering of people that once made cities like New York more desirable also make them more vulnerable to the spread of disease. Cities with large amounts of international business travel, tourism, diverse international populations, robust trade ports, and dense residential buildings with common areas are near-perfect breeding grounds for a virus such as COVID-19.

The Move Away from Big Cities

Over the last 20 years, people have moved to the urban core, favoring proximity to restaurants, theaters, work, and friends. Under the lens of a pandemic, however, those benefits have become hazards.

Source: United Nations World Urbanization

So far, evidence shows that COVID-19 is hitting densely populated areas harder. The same clustering of people that once made cities like New York more desirable also make them more vulnerable to the spread of disease. Cities with large amounts of international business travel, tourism, diverse international populations, robust trade ports, and dense residential buildings with common areas are near-perfect breeding grounds for a virus such as COVID-19.

Source: New York Times, Census

Renters will not only look closely at location and density when they begin to contemplate their next move, they will look far beyond their current location. In many cases, work-from-home policies are becoming permanent, allowing people to reevaluate their desire to live in the urban core and prioritize other needs, including affordability—particularly as the economy declines and unemployment grows—more outdoor space to accommodate social distancing, and larger and more work-from-home-friendly units. These needs could fuel more demand in near-urban and suburban neighborhoods. All of these demand drivers indicate that suburbs with large parks, less expensive rents, and larger units will be the beneficiaries in the coming cycle.

State and City Government Response

The United States has tasked state and local governments with responding to the public health crisis. As a result, the impact of the pandemic and economic dislocation varies substantially between geographic markets.

In Los Angeles County, which has a wide geographic footprint, different pockets of the city are being impacted more than others. Currently, submarkets like West L.A., Inglewood, and the City of Industry are outliers on a per capita basis for the spread of infection, while areas like Long Beach and East L.A. have higher absolute numbers. As residents consider their next move, areas where public officials have demonstrated effective oversight and are therefore deemed safe will be more desirable.

On the state level, the response to the pandemic has fallen along political party lines. Red states like Georgia and Texas have re-opened with largely unknown consequences, while states like California are taking a more conservative approach to reopening. Currently, data suggests that reopening too early may do more economic harm by increasing the likelihood of a second wave of the pandemic, triggering more stay-at-home orders and mandated business closures. Additionally, state-led legislative responses will be critically important to the apartment industry. Misguided responses, like rent caps and indefinite eviction moratoriums, will have a reverberating effect on local economies for years and possibly decades to come.

Affordable Housing Investment Accelerates

Older apartment buildings will have several advantages in the post-COVID world. They typically have lower density, green space, larger units with balconies, parking, and—perhaps most importantly—lower rents. In the last cycle, renovating older buildings through a value-add business plan was among the most popular investment strategies. However, in the coming cycle, flat or even declining rents won’t support significant capital improvements. Tenants will be looking for affordability above all, creating investment opportunity in middle-tier apartments with low in-place rents and minimal deferred maintenance or other renovation needs. However, the right asset could allow you to implement a value-add strategy following the recovery when rents and asset values start to grow again.


At Awning, we help curate markets and deals with data and artificial intelligence to spot these trends and others before the general market. We use our data advantage to help our clients make great investment decisions.