One could expect to find an esoteric beauty product at 3 a.m. downtown in a 24-hour city, said Anita Kramer, senior vice president of the Urban Land Institute‘s Center for Capital Markets and Real Estate. There’s plenty of commerce, transportation, and services – usually in the form of bars and restaurants.
So what’s an 18-hour city? It’s that sweet spot above the 9-to-5 urban market. The city doesn’t entirely shut down at midnight, but it’s not like New Orleans, which has no mandated closing time for bars, or New York, where subways and buses run around the clock.
These 18-hour cities, including Denver, Raleigh-Durham and Charlotte, N.C., have risen into the top 10 U.S. Markets to Watch for overall real estate prospects listed in the 2015 Emerging Trends in Real Estate report. What do they all have in common?
“The higher the urban growth rate, the more highly rated the market,” Kramer said, though there are outliers. She spoke of the Emerging Trends report during the annual Real Estate Outlook Lunch hosted by ULI San Antonio at the Pearl Stable on Tuesday.
“No longer are (established cities like Austin) the only ones that can support growing urban environments … it’s possible to recreate the attractiveness of an urban core environment. San Antonio is poised to be in the same national spotlight soon,” she said.
San Antonio didn’t make the top 10 list. It ranked 23rd, slipping from its spot in 19th last year. San Antonio is not quite an 18-hour city, either – maybe a 15-hour city as some bars close as early as midnight downtown during the week. But it’s close and those in the real estate community are taking notes. Literally.
Representatives from real estate and development companies big and small jotted down information on key real estate trends from Kramer’s presentation of the 36th edition of the report, a joint venture between ULI and PricewaterhouseCoopers (PwC), an international accounting and consultancy firm.
“Attractiveness of the new 18-hour city is certainly strengthened by relatively low cost of doing business and living,” Kramer said.
San Antonio has high marks in those areas, but most of these cities also have a growth emphasis in energy and technology sectors, experiencing a 7-10% growth rate in the last two years. These industries are still developing in San Antonio, where the growth rate over the same period was about 5.5%, according to the report.
“A huge takeaway is when you see so many of those lists and San Antonio isn’t even (close to the top of) them. Initially, I’m disappointed,” said Bill Shown, managing director of real estate for Silver Ventures, which owns the 22-acre Pearl Brewery property, after the event. “But then I see opportunity … we can become an 18-hour city – our biggest challenge and biggest opportunity is in getting a more educated work force.”
The report also cited an impending employment gap.
The panel that followed Kramer’s presentation, moderated by AREA Real Estate Principal David Adelman, featured two USAA Real Estate Company experts: Executive Managing Director of Real Estate Investments Bruce Peterson and Global Head of Research Will McIntosh.
USAA Real Estate Company manages more than $12 billion in assets.
At the top of the list of questions was the effect of the recent, dramatic drop in oil prices and the possible effects it would have on the real estate market. While cities such as Houston and Dallas, which have larger energy-based economies, may feel the effect, San Antonio may be relatively safe from oil companies taking a closer look at their bottom line, the panel agreed.
“It’s a double-edged sword,” McIntosh said. “It’s like getting a tax break if you’re a consumer … also good for industries that spend a lot on gas. On the other hand if you’re in a local economy that’s driven heavily by oil employment – it may cause them to have to lay off workers.”
The panel also agreed that oil prices will come back up in the long-term, but the office and single-family home market may be affected by oil prices in Houston or Dallas.
“Thier economies are much more diverse,” McIntosh said. “Not nearly the same (energy-dependent) as it was 10 years ago.”
As for investing in 18-hour cities, that’s not a metric used in the real estate market yet, Peterson said.
“We’re looking for job growth, and reinvesting in locations that demonstrate that,” he said. “Raleigh-Durham is a great market but not on the radar of international investors. There’s no red line on it, just no opportunities that we’ve seen … investment capital wants to be in a familiar place.”
The “trifecta” that investors look for is in energy, medical, technology, and San Antonio is growing in those regards, McIntosh said.
Another key trend cited in the report is the unknown behavior of the Millennial and baby boomer generational markets. While Millennials have proven to favor the amenities that a live/work urban environment provides – walkability, density, and sustainability – it’s unclear if they will take those values with them when they start having families and making decent salaries or if the call of the suburbs will lure them away.
Boomers have not yet “gone out to pasture” either, the report stated.
“A decade or two ago, the expectation was that resort and retirement communities, mostly in the Sun Belt, were going to be the ‘hot property types’ just about now. The Emerging Trends survey this year, however, ranked such property as the least desirable investment and development opportunities.”
Millennials and baby boomers represent a total of 160 million people, however, so there will surely be exceptions and unpredictability, the report stated.
“It’s no longer just one generation or another to look out for,” Kramer said.
Investors and developers remain cautious on each front. As the report stated, “Painting them with too broad a brush will lead to misplaced expectations, as it has with the baby boomers. One size will not fit all Millennials.”
Click here to explore the complete report and all 10 emerging real estate trends.
*Featured/top image: The Pearl Stable during the 2015 ULI San Antonio Annual Real Estate Outlook Lunch. Photo by Iris Dimmick.