There’s no doubt that the COVID-19 pandemic was a catastrophe, generating a high incidence of heartbreaking illnesses and death. The pandemic also negatively influenced residential CRE in urban cores and gateway cities. As people fled higher-density areas for more spacious outskirts, apartment rents took a beating. So did condo sales.

What’s happening these days? Statistics released by the National Association of Realtors for January 2024 reported that condo and co-op sales decreased by 4.8% year over year. But there is more lurking behind the metrics.

Séamus Naughten, managing partner of Dolmen Property Group, explained that nearly half of the developer’s 54-unit Oran, a condominium project in the Lower Nob Hill area of San Francisco, has been snapped up by first-time homebuyers since sales launched in early 2023. “Despite all of the negative reports and discussions about interest rates and housing costs, we think Oran and similar wellness-focused projects tell a different story,” he said.

What is that story? Experts tell Connect CRE that the more accurate narrative focuses on regrowth in gateway cities and an apparent comeback in condominiums in these urban cores.

Or, as Jonathon Cordell, Lendlease’s Director of Development Management and Operations, Central Region, explained: “Many of those who can afford to rent in urban areas can also afford to buy. It’s a matter of educating them about the process and cost comparisons.”

The Great Relocation – Back to Downtown

Multiple metrics support that the flight to suburbia’s wider open spaces in 2020 and 2021 is reversing. Research from Oxford Economics reports that “many people have started to move back to large urban areas,” the direct opposite of what occurred in 2020 and 2021.

The U.S. Census Bureau’s numbers also noted that domestic migration from some urban counties has noticeably slowed.

Meanwhile, according to the Federal Reserve Bank of Cleveland, migration is “rapidly returning to its old patterns in some areas;” these include New York, Los Angeles and San Francisco.

Part of the reason for the increase in the back-to-urban-core migration is practicality. “Many companies have required the return to office. Many companies have required the return to office, so workers have had no choice but to return to residing in these cities,” explained Seamus Nally, CEO of rental property management software developer TurboTenant.  

As a result, “while the pandemic initially led to an exodus away from cities, the condo market has rebounded in vibrant urban areas,” Cordell said. The above-mentioned Oran in San Francisco is one example of a condo project generating steady sales.

Also generating positive and steady sales are Lendlease’s two new condominium towers in Chicago. These properties are the 350-unit Cirrus in Lakeshore East and The Reed, which offers 216 units in Southbank, on the Chicago River’s South Branch. “Buyers at these properties are exhibiting greater confidence in their decision to purchase,” Cordell said.

Another likely reason sales for condo properties are rising is that many younger professionals have been saving money while hiding out in the suburbs. “Some moved back in with their parents and had virtually no expenses, while others simply moved to less-expensive areas,” Nally said. “Those few years allowed a lot of those people to strategically save up for a condo.”

The Financing Focus

The experts agreed that the continued high-interest environment has discouraged some potential buyers. But Cordell pointed out that an advantage offered by new-construction condos is available creative financing options. “For example, Lendlease offers a temporary rate buydown program at Cirrus and Reed at Southbank,” he said. “This uses developer credits to help condo buyers secure a mortgage from a preferred lender several percentage points below what is available on the market.” Cirrus also offers a rent-to-own program that prompts buyers to execute lease and purchase agreements for the units they’ll eventually buy.

Meanwhile, Oran is located in a low-income census tract. Because of this, Naughten explained that lenders offer significant incentive packages to interested first-time buyers. “For example, some of the banks have been offering up to $17,000 in credits to qualified buyers that they can use toward closing costs,” he commented.

The Amenities are the Thing

Amenities have always been a lure to attract residents, whether they want to rent or own. These days, condo developers and sellers understand this. According to Miles Carter, senior counsel at Allen Matkins, amenities have become hugely important, especially for first-time buyers.

“Historically, developers resisted including big-ticket, luxury items that would result in higher monthly HOA assessments,” he said, adding that such assessments tended to scare off first-time buyers. However, developers are meeting demand and incorporating luxury amenities into their properties. This is the case “especially when those buyers can justify or offset increased assessments by canceling their gym memberships or using the communal office space to ‘work from home,’ Carter explained.

Another reason why luxury amenities are essential for first-time buyers is familiarity. “Many are moving from high-end rental buildings, where common areas serve as an extension of private living space,” Cordell noted. “They don’t want their first purchase to feel like a downgrade.”

David Bitton, a broker and CMO/co-founder of property management firm Doorloop, agreed, noting that a critical amenity involves creating multiuse and flexible spaces. “Flexible floor plans should accommodate various needs like office space, fitness and hosting guests,” he added.

Adding to the flexible community spaces and technology integration is an increasing demand for health-related amenities like those offered by Oran. Dolmen’s Naughten said the project was designed with healthy living in mind, especially in response to concerns over the viral spread during the COVID outbreak. To help counter this, one of Oran’s features is a system that assists in killing harmful airborne bacteria and viruses. The package also includes IT microbial hardware and contactless entry systems.

Cordell agreed that the amenities have experienced a shift toward technology integration, health and wellness and sustainability. Also important are “flexible community spaces that accommodate hybrid work schedules,” he added.

The Condominium Crystal Ball

The experts explained that 2024 should be a good year for the condominium space, especially in the urban core.

Naughten said that cities will be the big winners in 2024, mainly because young professionals are showing a high degree of willingness to return. “The 27-year-old living with his parents can’t take the suburbs anymore,” he observed. “They want to be back for the social aspect and to be closer to work.”

Bitton said he anticipates that city living demand will continue to rebound in the coming months, especially in gateway cities. As a result, an uptick in condo sales is inevitable. But, he cautioned, preparing for challenges is also essential.

“Some of these challenges are lingering concerns about health, safety and evolving lifestyle preferences,” Bitton said. “There is also the rising demand for adaptability in the market to meet changing consumer demands.”

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