(Bloomberg Opinion) -- The pandemic accomplished in 10 months what internet technologies have been promising for decades: a shift away from high-cost cities as the dominant centers of workforce talent and business activity. It's a shock that's just beginning to reverberate through the system.
Apartment rents in high-cost metro areas like San Francisco, New York, Boston and Seattle have fallen more than 20% compared with pre-pandemic levels, while rents have actually risen modestly in low-cost areas like Albuquerque, New Mexico and Fresno, California. Narratives have sprung up about the future of the technology industry being in places like Austin, Texas, or even Miami.
But with a large price adjustment already behind us, and millions of doses of vaccines being administered every week, 2021 might actually be a once-in-a-generation opportunity for ambitious young people to get bargain pricing on the best cities in America — places like New York, which were expensive for a reason.
The argument for New York isn't quite as strong as it was a year ago, but for those early in their careers it remains a compelling one. Working remotely or from a lower-cost metro is great for the right person, especially one in a more established phase of life — I've been working remotely for eight years now — but that's probably not the case for someone in their 20's who's early in their career and trying to build their network and skills. For that, nothing beats the experience of in-person contacts and being exposed to countless other people in one's industry from whom they can learn and grow.
To the extent remote work remains at a high level even after the pandemic, these types of office settings might become even more scarce than they were before, making them more sought-after by young workers who need them for career advancement. We might even see workers and companies make city choices based on the kind of work culture they prefer — perhaps New York becomes the hub for in-person activity while Miami or Austin specialize more in remote work, with those in-person hubs getting a price premium for their scarcity.
High levels of retail and office vacancies are a problem for a city's tax base and its landlords, but for workers and people new to a city they're an opportunity. Low vacancy rates and high commercial rents constrained new business formation in the 2010's. The opposite in 2021 could mean an explosion in new business creation over the next couple years as the economy comes back — which it's likely to do, boosted by trillions of dollars of fiscal stimulus at the federal level.
Long-time New Yorkers might still weep for the businesses that were lost, but for newer residents without that institutional memory, it will mean an abundance of new choices that cater to the preferences and lifestyles of a post-pandemic New York.
While even in an optimistic scenario it's going to take years for New York to come all the way back, the signs are indicating the recovery is underway. Elevated vacancy rates and a plunge in rents created the economic conditions for an improvement. Apartment lease volumes are starting to surge. Rents appear to be bottoming out. We see the pace of vaccinations increasing and infections have begun to fall rapidly. Meanwhile Democrats are getting ready to move on another $1 trillion fiscal relief package, and warmer weather — with a potential new normal for street life — is coming.
If cities are analogous to the stock market, New York would be like a quality growth stock that historically traded at a large premium to the market. After going through a rough patch, its price is knocked down 20% — but it's still trading at a slight premium.
A purely by-the-numbers value investor might say that it remains a little expensive and there are cheaper stocks out there, but that ignores all the reasons it was expensive to begin with. And while its turnaround is just beginning — there's both a literal and figurative two feet of snow on the ground that has to melt — it's a much better bet at this point than chasing unproven second-tier markets that have lost much of their cost advantage to their high-cost peers, and might see some of their selling points melt away as normal life returns.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Conor Sen is a Bloomberg Opinion columnist and the founder of Peachtree Creek Investments. He's been a contributor to the Atlantic and Business Insider and resides in Atlanta.
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