![\"\"](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/06\/iStock-509076161.jpg\")
<\/a>Traditional retiree movement to the Sunbelt is shifting as more Baby Boomers choose to age in place or move to more temperate climates like Nashville. This means Florida and Arizona can no longer depend on retirees for basic real estate demand growth.<\/p><\/div>\n
While U.S. gateway cities will continue to be popular among commercial real estate investors and developers, the next decade will experience a shift for many into second-tier and interior markets. PwC and the Urban Land Institute first highlighted this movement in the 2015 \u201cEmerging Trends in Real Estate\u201d report, noting, \u201cNo longer is it accepted that only the great coastal cities can be alive around the clock and on the weekends.\u201d<\/p>\n
These downtown transformations had combined the key ingredients of housing, retail, dining and walk-to-work offices to regenerate urban cores, the report said, spurring investment and development and raising the quality of life in a number of cities.<\/p>\n
Over three years, smaller markets have been replacing gateway cities on the report\u2019s Top 10 U.S. Markets to Watch list, for which investors and developers rate potential among 78 cities, according to Anita Kramer, vice president of the ULI Center for Capital Markets and Real Estate. This year, only two traditional gateway markets made the top 10: Los Angeles at No. 5 and San Francisco at No. 10. Rounding out the top markets, in order, were Austin, Dallas-Fort Worth, Portland, Seattle, Nashville, Raleigh-Durham, Orange County and Charlotte.<\/p>\n
\u201cWhat is it about the smaller markets attracting attention?\u201d Kramer asked. For investors identifying the best markets to target, six qualifications stand out.<\/p>\n
1. Job and Population Growth<\/h2>\n![\"\"](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/06\/HughKelly.jpg?w=300\")
<\/a>Dr. Hugh Kelly, special advisor to the Fordham Real Estate Institute at Lincoln Center<\/p><\/div>\n
The nation\u2019s population continues to grow, with 325 million people living in the U.S. now and as many as 400 million by mid-century, according to Dr. Hugh Kelly, special advisor to the Fordham Real Estate Institute at Lincoln Center.<\/p>\n
\u201cImmigration trends will affect that a lot, but the anti-immigrant policies being put in place are temporary\u2014they\u2019re not going to last, and there are good labor force reasons for that,\u201d he said. \u201cWe will not have enough workers to grow the economy unless we have immigration of one million people per year.\u201d<\/p>\n
Immigrants by and large will move to cities, he continued, and this means the need for additional housing, public services and service-based jobs. \u201cDespite the \u2018America first\u2019 attitude, you can\u2019t turn the tide on globalization,\u201d he said. \u201cEconomically connected cities will create the greatest number of jobs.\u201d<\/p>\n
Growth markets based on employment expansion include Seattle, Denver, Las Vegas, Silicon Valley, Chicago, Charlotte and Nashville, said Robert Bach, formerly director of research \u2013 Americas for Newmark Knight Frank. He also pointed to markets like Dallas, Austin, Orlando, Atlanta, Raleigh-Durham and Phoenix as offering rapid population and employment growth with somewhat higher cap rates, providing good prospects for further growth.<\/p>\n
2. University Presence<\/h2>\n![\"\"](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/06\/iStock-178381010.jpg?w=300\")
<\/a>Affordable cities with a strong research university presence, like Pittsburgh, can benefit despite not having the industry concentration larger cities like New York have. Pictured is the University of Pittsburgh\u2019s landmarked Cathedral of Learning.<\/p><\/div>\n
A strong university presence\u2014particularly where industry has partnered with academic institutions\u2014is increasingly vital, contends Heidi Learner, chief economist for Savills Studlley.<\/p>\n
\u201cThe \u2018university effect\u2019 is certainly one reason that areas like Raleigh, Phoenix, Atlanta and Austin are doing well,\u201d she said, noting affordable cities with a strong research university presence, like Pittsburgh, can benefit despite lacking the industry concentration larger cities like New York have.<\/p>\n
These cities also have more vibrant economies, because students create street life and retail, Kelly added. And it\u2019s just as important to work hard on K-12 education for long-term growth.<\/p>\n
REIS senior economist Barbara Byrne Denham warned cities must have a solid government that will nurture and retain the community schools have built. This is especially important in cities with graduate schools, as those students are more likely to join the local workforce.<\/p>\n
3. Millennial and Baby Boomer Preferences<\/h2>\n
\u201cMillennials will always be looking for the next big thing,\u201d Denham noted. \u201cAnd that may be more interior cities that offer a high quality of living and amenities. While they\u2019re not by the ocean, they\u2019ll offer features like mountains and lakes.\u201d She listed Denver and Phoenix, and \u201cperhaps even the Great Lakes.\u201d<\/p>\n
The lack of household formation by younger adults will help those markets\u2019 multifamily sectors, according to Learner. The fraction of older Millennials, ages 25 to 34, bucking homeownership has continued to rise. And while the labor market has recovered, debt loads will continue to limit homeownership.<\/p>\n
Meanwhile, Baby Boomers may also support interior cities as more age in place near their children and grandchildren. \u201cPeople are healthier, living longer and living more active lifestyles,\u201d Kelly said\u2014and they are also working longer, as they are nervous about retirement funds.<\/p>\n
Furthermore, Phoenix has become less attractive to retirees over the past few years as it has grown expensive again, as have Las Vegas and Sacramento, Denham said. Instead, Albuquerque and Santa Fe will be sleepers for this group due to their low cost of living.<\/p>\n
Other options with a more temperate climate include North Carolina, Nashville and Atlanta. Climate change may even work in favor of some places that are warmer than they used to be, such as New England.<\/p>\n
\u201cThe question is, will (investors) be chasing higher quality or lower cost of living?\u201d Kramer asked. \u201cMy guess is both, which is good news for more interior markets.\u201d<\/p>\n
4. Infrastructure and Transportation<\/h2>\n![\"\"](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/06\/Denver_Airport_RTD_Station_from_Westin_Hotel.jpg?w=300\")
<\/a>Denver is one city aggressively building out its transit system and committed to smart infrastructure investment. In 2016, it launched Regional Transportation District (RTD) train service that offered easy, affordable and reliable transportation from Downtown to Denver International Airport. Image by Jdubman at English Wikipedia<\/p><\/div>\n
Infrastructure and transportation play a huge role on the submarket level, Bach pointed out. One great example is Portland, Ore., one of the first midsize markets to build a light-rail system and implement an urban growth boundary to control sprawl. Denver is also aggressively building out its transit system and committed to smart infrastructure investment.<\/p>\n
Another lesson we\u2019ve learned in the past decade is that people don\u2019t like to drive, noted Denham. So cities that allow people to forgo cars and instead take public transportation or bike to work will thrive.<\/p>\n
Nearby access to major cities will also be helpful from a residential point of view, noted Learner. This is attracting companies to places like Jersey City and Newark near New York City.<\/p>\n
But many cities still suffer from infrastructure deficits. \u201cCities and states must be willing to tax themselves, and the ones that don\u2019t will fall behind,\u201d Kelly warned. \u201cContrary to belief, low taxes are a race to the bottom in the long term. Companies will go where the profit potential is, not because of low cost.\u201d<\/p>\n
5. Industry and Technology<\/h2>\n
It\u2019s impossible to ignore the impact of e-commerce, which will make major metros with proximity to population centers increasingly important, Learner said.<\/p>\n
\u201cWe tend to think of New York as the center of everything, but the median point for U.S. population is in Indiana\u2014one reason a lot of distribution centers are developing in the area,\u201d she noted.<\/p>\n
Demand for distribution and fulfillment centers is off the chart, particularly in the Inland Empire, Dallas, Atlanta, Chicago and Northern New Jersey, as well as some smaller markets such as Indianapolis, Louisville and Cincinnati, Bach added.<\/p>\n
Technology will also continue to propel many markets, he continued, noting that a number of smaller markets are developing small technology ecosystems, among them Indianapolis and Salt Lake City.<\/p>\n
6. Long-Term Vision<\/h2>\n
<\/a>Dr. Hugh Kelly, special advisor to the Fordham Real Estate Institute at Lincoln Center<\/p><\/div>\n
The nation\u2019s population continues to grow, with 325 million people living in the U.S. now and as many as 400 million by mid-century, according to Dr. Hugh Kelly, special advisor to the Fordham Real Estate Institute at Lincoln Center.<\/p>\n
\u201cImmigration trends will affect that a lot, but the anti-immigrant policies being put in place are temporary\u2014they\u2019re not going to last, and there are good labor force reasons for that,\u201d he said. \u201cWe will not have enough workers to grow the economy unless we have immigration of one million people per year.\u201d<\/p>\n
Immigrants by and large will move to cities, he continued, and this means the need for additional housing, public services and service-based jobs. \u201cDespite the \u2018America first\u2019 attitude, you can\u2019t turn the tide on globalization,\u201d he said. \u201cEconomically connected cities will create the greatest number of jobs.\u201d<\/p>\n
Growth markets based on employment expansion include Seattle, Denver, Las Vegas, Silicon Valley, Chicago, Charlotte and Nashville, said Robert Bach, formerly director of research \u2013 Americas for Newmark Knight Frank. He also pointed to markets like Dallas, Austin, Orlando, Atlanta, Raleigh-Durham and Phoenix as offering rapid population and employment growth with somewhat higher cap rates, providing good prospects for further growth.<\/p>\n
2. University Presence<\/h2>\n<\/a>Affordable cities with a strong research university presence, like Pittsburgh, can benefit despite not having the industry concentration larger cities like New York have. Pictured is the University of Pittsburgh\u2019s landmarked Cathedral of Learning.<\/p><\/div>\n
A strong university presence\u2014particularly where industry has partnered with academic institutions\u2014is increasingly vital, contends Heidi Learner, chief economist for Savills Studlley.<\/p>\n
\u201cThe \u2018university effect\u2019 is certainly one reason that areas like Raleigh, Phoenix, Atlanta and Austin are doing well,\u201d she said, noting affordable cities with a strong research university presence, like Pittsburgh, can benefit despite lacking the industry concentration larger cities like New York have.<\/p>\n
These cities also have more vibrant economies, because students create street life and retail, Kelly added. And it\u2019s just as important to work hard on K-12 education for long-term growth.<\/p>\n
REIS senior economist Barbara Byrne Denham warned cities must have a solid government that will nurture and retain the community schools have built. This is especially important in cities with graduate schools, as those students are more likely to join the local workforce.<\/p>\n
3. Millennial and Baby Boomer Preferences<\/h2>\n
\u201cMillennials will always be looking for the next big thing,\u201d Denham noted. \u201cAnd that may be more interior cities that offer a high quality of living and amenities. While they\u2019re not by the ocean, they\u2019ll offer features like mountains and lakes.\u201d She listed Denver and Phoenix, and \u201cperhaps even the Great Lakes.\u201d<\/p>\n
The lack of household formation by younger adults will help those markets\u2019 multifamily sectors, according to Learner. The fraction of older Millennials, ages 25 to 34, bucking homeownership has continued to rise. And while the labor market has recovered, debt loads will continue to limit homeownership.<\/p>\n
Meanwhile, Baby Boomers may also support interior cities as more age in place near their children and grandchildren. \u201cPeople are healthier, living longer and living more active lifestyles,\u201d Kelly said\u2014and they are also working longer, as they are nervous about retirement funds.<\/p>\n
Furthermore, Phoenix has become less attractive to retirees over the past few years as it has grown expensive again, as have Las Vegas and Sacramento, Denham said. Instead, Albuquerque and Santa Fe will be sleepers for this group due to their low cost of living.<\/p>\n
Other options with a more temperate climate include North Carolina, Nashville and Atlanta. Climate change may even work in favor of some places that are warmer than they used to be, such as New England.<\/p>\n
\u201cThe question is, will (investors) be chasing higher quality or lower cost of living?\u201d Kramer asked. \u201cMy guess is both, which is good news for more interior markets.\u201d<\/p>\n
4. Infrastructure and Transportation<\/h2>\n<\/a>Denver is one city aggressively building out its transit system and committed to smart infrastructure investment. In 2016, it launched Regional Transportation District (RTD) train service that offered easy, affordable and reliable transportation from Downtown to Denver International Airport. Image by Jdubman at English Wikipedia<\/p><\/div>\n
Infrastructure and transportation play a huge role on the submarket level, Bach pointed out. One great example is Portland, Ore., one of the first midsize markets to build a light-rail system and implement an urban growth boundary to control sprawl. Denver is also aggressively building out its transit system and committed to smart infrastructure investment.<\/p>\n
Another lesson we\u2019ve learned in the past decade is that people don\u2019t like to drive, noted Denham. So cities that allow people to forgo cars and instead take public transportation or bike to work will thrive.<\/p>\n
Nearby access to major cities will also be helpful from a residential point of view, noted Learner. This is attracting companies to places like Jersey City and Newark near New York City.<\/p>\n
But many cities still suffer from infrastructure deficits. \u201cCities and states must be willing to tax themselves, and the ones that don\u2019t will fall behind,\u201d Kelly warned. \u201cContrary to belief, low taxes are a race to the bottom in the long term. Companies will go where the profit potential is, not because of low cost.\u201d<\/p>\n
5. Industry and Technology<\/h2>\n
It\u2019s impossible to ignore the impact of e-commerce, which will make major metros with proximity to population centers increasingly important, Learner said.<\/p>\n
\u201cWe tend to think of New York as the center of everything, but the median point for U.S. population is in Indiana\u2014one reason a lot of distribution centers are developing in the area,\u201d she noted.<\/p>\n
Demand for distribution and fulfillment centers is off the chart, particularly in the Inland Empire, Dallas, Atlanta, Chicago and Northern New Jersey, as well as some smaller markets such as Indianapolis, Louisville and Cincinnati, Bach added.<\/p>\n
Technology will also continue to propel many markets, he continued, noting that a number of smaller markets are developing small technology ecosystems, among them Indianapolis and Salt Lake City.<\/p>\n
6. Long-Term Vision<\/h2>\n
<\/a>Affordable cities with a strong research university presence, like Pittsburgh, can benefit despite not having the industry concentration larger cities like New York have. Pictured is the University of Pittsburgh\u2019s landmarked Cathedral of Learning.<\/p><\/div>\n
A strong university presence\u2014particularly where industry has partnered with academic institutions\u2014is increasingly vital, contends Heidi Learner, chief economist for Savills Studlley.<\/p>\n
\u201cThe \u2018university effect\u2019 is certainly one reason that areas like Raleigh, Phoenix, Atlanta and Austin are doing well,\u201d she said, noting affordable cities with a strong research university presence, like Pittsburgh, can benefit despite lacking the industry concentration larger cities like New York have.<\/p>\n
These cities also have more vibrant economies, because students create street life and retail, Kelly added. And it\u2019s just as important to work hard on K-12 education for long-term growth.<\/p>\n
REIS senior economist Barbara Byrne Denham warned cities must have a solid government that will nurture and retain the community schools have built. This is especially important in cities with graduate schools, as those students are more likely to join the local workforce.<\/p>\n
3. Millennial and Baby Boomer Preferences<\/h2>\n
\u201cMillennials will always be looking for the next big thing,\u201d Denham noted. \u201cAnd that may be more interior cities that offer a high quality of living and amenities. While they\u2019re not by the ocean, they\u2019ll offer features like mountains and lakes.\u201d She listed Denver and Phoenix, and \u201cperhaps even the Great Lakes.\u201d<\/p>\n
The lack of household formation by younger adults will help those markets\u2019 multifamily sectors, according to Learner. The fraction of older Millennials, ages 25 to 34, bucking homeownership has continued to rise. And while the labor market has recovered, debt loads will continue to limit homeownership.<\/p>\n
Meanwhile, Baby Boomers may also support interior cities as more age in place near their children and grandchildren. \u201cPeople are healthier, living longer and living more active lifestyles,\u201d Kelly said\u2014and they are also working longer, as they are nervous about retirement funds.<\/p>\n
Furthermore, Phoenix has become less attractive to retirees over the past few years as it has grown expensive again, as have Las Vegas and Sacramento, Denham said. Instead, Albuquerque and Santa Fe will be sleepers for this group due to their low cost of living.<\/p>\n
Other options with a more temperate climate include North Carolina, Nashville and Atlanta. Climate change may even work in favor of some places that are warmer than they used to be, such as New England.<\/p>\n
\u201cThe question is, will (investors) be chasing higher quality or lower cost of living?\u201d Kramer asked. \u201cMy guess is both, which is good news for more interior markets.\u201d<\/p>\n
4. Infrastructure and Transportation<\/h2>\n<\/a>Denver is one city aggressively building out its transit system and committed to smart infrastructure investment. In 2016, it launched Regional Transportation District (RTD) train service that offered easy, affordable and reliable transportation from Downtown to Denver International Airport. Image by Jdubman at English Wikipedia<\/p><\/div>\n
Infrastructure and transportation play a huge role on the submarket level, Bach pointed out. One great example is Portland, Ore., one of the first midsize markets to build a light-rail system and implement an urban growth boundary to control sprawl. Denver is also aggressively building out its transit system and committed to smart infrastructure investment.<\/p>\n
Another lesson we\u2019ve learned in the past decade is that people don\u2019t like to drive, noted Denham. So cities that allow people to forgo cars and instead take public transportation or bike to work will thrive.<\/p>\n
Nearby access to major cities will also be helpful from a residential point of view, noted Learner. This is attracting companies to places like Jersey City and Newark near New York City.<\/p>\n
But many cities still suffer from infrastructure deficits. \u201cCities and states must be willing to tax themselves, and the ones that don\u2019t will fall behind,\u201d Kelly warned. \u201cContrary to belief, low taxes are a race to the bottom in the long term. Companies will go where the profit potential is, not because of low cost.\u201d<\/p>\n
5. Industry and Technology<\/h2>\n
It\u2019s impossible to ignore the impact of e-commerce, which will make major metros with proximity to population centers increasingly important, Learner said.<\/p>\n
\u201cWe tend to think of New York as the center of everything, but the median point for U.S. population is in Indiana\u2014one reason a lot of distribution centers are developing in the area,\u201d she noted.<\/p>\n
Demand for distribution and fulfillment centers is off the chart, particularly in the Inland Empire, Dallas, Atlanta, Chicago and Northern New Jersey, as well as some smaller markets such as Indianapolis, Louisville and Cincinnati, Bach added.<\/p>\n
Technology will also continue to propel many markets, he continued, noting that a number of smaller markets are developing small technology ecosystems, among them Indianapolis and Salt Lake City.<\/p>\n
6. Long-Term Vision<\/h2>\n
<\/a>Denver is one city aggressively building out its transit system and committed to smart infrastructure investment. In 2016, it launched Regional Transportation District (RTD) train service that offered easy, affordable and reliable transportation from Downtown to Denver International Airport. Image by Jdubman at English Wikipedia<\/p><\/div>\n
Infrastructure and transportation play a huge role on the submarket level, Bach pointed out. One great example is Portland, Ore., one of the first midsize markets to build a light-rail system and implement an urban growth boundary to control sprawl. Denver is also aggressively building out its transit system and committed to smart infrastructure investment.<\/p>\n
Another lesson we\u2019ve learned in the past decade is that people don\u2019t like to drive, noted Denham. So cities that allow people to forgo cars and instead take public transportation or bike to work will thrive.<\/p>\n
Nearby access to major cities will also be helpful from a residential point of view, noted Learner. This is attracting companies to places like Jersey City and Newark near New York City.<\/p>\n
But many cities still suffer from infrastructure deficits. \u201cCities and states must be willing to tax themselves, and the ones that don\u2019t will fall behind,\u201d Kelly warned. \u201cContrary to belief, low taxes are a race to the bottom in the long term. Companies will go where the profit potential is, not because of low cost.\u201d<\/p>\n
5. Industry and Technology<\/h2>\n
It\u2019s impossible to ignore the impact of e-commerce, which will make major metros with proximity to population centers increasingly important, Learner said.<\/p>\n
\u201cWe tend to think of New York as the center of everything, but the median point for U.S. population is in Indiana\u2014one reason a lot of distribution centers are developing in the area,\u201d she noted.<\/p>\n
Demand for distribution and fulfillment centers is off the chart, particularly in the Inland Empire, Dallas, Atlanta, Chicago and Northern New Jersey, as well as some smaller markets such as Indianapolis, Louisville and Cincinnati, Bach added.<\/p>\n
Technology will also continue to propel many markets, he continued, noting that a number of smaller markets are developing small technology ecosystems, among them Indianapolis and Salt Lake City.<\/p>\n