As we begin to investigate the rippling effects that the pandemic will have on our industry, it is important to identify two of the primary players, individual and business stakeholders, and the major factors impacting their decision making for life in the wake of widespread shelter in place.

First and foremost, the most compelling question we face is who leaves cities in a post-Covid world? The decisions that an individual makes surrounding where to live and what they want to do are predominantly driven by what stage of life they find themselves in. As human-beings, we are natural pack-animals, and many of our decisions rely heavily on who we are determined to surround ourselves with. Whether we are focused on learning, making money, or having fun, our choice of living location will reflect those priorities, and who you share them with.

For the sake of discussion, we have identified five major age groups, organized by their sensitivity to a crisis and how their needs and interests impact their decision-making as it pertains to where they live. The career an individual pursues and the influence of their family situation are the macro constraints that determine every life choice an individual makes. These two decision-criteria are primarily driven by the framework of an individual’s stage of life. These age groups, and their immediate needs are determined as follows:

• “Minimal Choice” - 18-23 years old, college-age or graduate students. These individuals will remain in cities because of the early-professional resources that are available to them. This could be a college or university as well as the internships and entry-level jobs they’re looking for.

• “Fight” - 23-35 years old, singles or pre-children couples. These individuals will stay in cities because of the communities and social networks they have with other young people. These people will have the flexibility to work elsewhere but will widely choose to remain in cities as a result of their pre-established social/personal life or to take advantage of the lifestyle that the city offers. Cities will always represent opportunity for the young people who can seek it out, and more importantly will have the vibrant communities that young people look for as they seek to establish, expand, or stay close to their social circles. You’re more likely to meet new people in a big city, you’re more likely to date and find a life partner in a big city, and you’re more likely to find a job in a big city.

• “Flight” - 35-55 years old, couples with kids. These are the individuals of the most flight risk to the City who, depending on their individual wealth, will make the decision to move to primary and secondary suburbs as the concern for the well-being of their children grows. These people will be the ones to seek more space in order to more comfortably and securely be at home with families. This event will increase their sensitivities to the burdens of child-rearing in the city.  This group will also factor in the cost of raising children in cities and especially concerning generally better public schools in suburbs.

• “Neutral” - 55-70 years old. Habitual by nature, these individuals are unlikely to break their routine. These are the young retirees and the parents of college-age children who will not have the same fear-based response to the dangers of city living but will also not have strong economic incentives to remain in the city. Their employers will likely be expanding work-from-home opportunities, and some in this demographic will adapt to a new way of working. This demographic is transitioning from active careers to enjoying the fruits of their labor. These individuals are those who have chosen a path to take at the proverbial “fork in road” of choosing a life in the city or a life in the country and are largely unlikely to go back on that decision.

• “Vulnerable” - 70+ years old. Senior citizens who are at greater risk to illnesses and may be faced with the decision to leave crowded cities to avoid exposure. These individuals could be at mercy of decisions by family members who provide their healthcare (retirement homes, in-house care, hospice care etc.). These individuals who have made the decision to remain in the city for the benefits a city has to offer to a retiree (entertainment, restaurants, culture etc.) will be faced with new challenges as the return of those things is significantly impacted in both the short and long term.

We can expect that although individual choices have a significant number of influences, the ones outlined above are largely accurate as it pertains to each age group. From this, it is safe to assume that generally speaking, those least likely to relocate from America’s cities are those singles and pre-kid couples in the 18-35-year range. By contrast, those individuals most likely to withdraw from cities are those individuals constituting a couple, with children, in the 35-55-year range.

Just as an individual faces the pressure to reevaluate their living situation as it applies to a post-pandemic world, companies are now facing the equally formidable challenge of how to adapt their business practices to a post-Covid world. The main aspects of a company that impact its ability to decentralize their business practices are the industry it occupies, the size of its employee base and its footprint as it pertains to its clientele outreach and talent retention. These aspects of a company will have the strongest impact on their decisions surrounding where to continue to do business. Does it make sense to pack up shop and leave the city or not?

Industry: Does the company provide a physical product, a digital service or product, or a local service? The industry that a company occupies has the greatest impact in its choice of location. Those companies who provide a digital service or product are the least burdened by a shift towards a more remote workforce. Contrarily, a company that provides a local service or product (i.e. a restaurant, hospital or municipality) are the most constrained by their location. It is hard to treat patients in the ER via Zoom.

Size: The size of a company is a direct reflection of its ability to pivot business practices in a timely and productive manner. The size of a company can be measured in its number of employees, its earnings or its assets. A company’s ability to buttress its core practice with remote production, will directly impact its decision of whether or not to relocate resources.

Footprint: Local, Regional, National, or Global? The more global the company, the greater the economic incentive to move costs away from urban core markets and the greater degree to which companies are set up to operate with a distributed workforce. Smaller companies that act in a local capacity are the least capable in distributing their workforce or remotely servicing their client base. Does this company need a local footprint to attract talent? Or are there epicenters of this talent where it’s important for the company to have some form of representation?

It is safe to assume that given the above factors impacting a company, those large, global companies who provide a digital service are the most capable of shifting the bulk of their workforce to remote production. They are the ones at the greatest risk to a first-tier city as the appeal of a second-tier city, which might offer lower operating costs, becomes more viable.

Contrarily, a company that operates in a local capacity, providing a local service or product, is fairly incapable of decentralizing its workforce and is far less likely to uproot itself and relocate its business.

As it pertains to the Bay Area, we are on the forefront of technological innovation and as a consequence more global tech companies call The Bay home than any other urban area in the world. Additionally, San Francisco has the highest concentration of wealth for American cities second only to New York City. For these reasons, San Francisco is at a higher risk to population exodus than most cities as wealthy individuals who have the capacity to work remotely are widely expected to relocate from the heart of the city to the primary and secondary city suburbs.

That all being considered, it is important to address the role that Oakland will have to play in all of this. As companies are faced with the decision to relocate from major cities, the immediate secondary cities will be the first to receive the expelled workforce. It has always been in our business model that our primary tenants include nurses, municipal workers and young professionals looking for more privacy for their dollar, and these exact demographics are most likely to end up in Oakland after any relocations. The effects of Covid-19 are unavoidable and they will be felt for years to come (especially if an effective vaccine is not available), that much is beyond contestation. However, as we have reported in the past, even in the worst economic downcycles, the workforce sector typically sees only a ~4% drop in rents (versus 30%+ for luxury), and this crisis is no exception. Furthermore, the unique impact that this event will have on the future of business practices across the globe will change the landscape of real estate as it supports the relocation of America’s workforce. We continue to believe that our ABD Apartments, and moderate-income workforce housing generally, will see growing demand in the urban core and primary suburbs of the Bay Area.