While many investors aspire to own a piece of the skylines dotting America’s gateway cities, 2016 is the year of the secondary and tertiary markets, which are offering a better proposition value than most of the traditional “Big Six” markets. The Urban Land Institute (ULI) recently released its “Emerging Trends in Real Estate” report, which highlights some of the best markets to watch this year.
Issues found with larger markets, the report says, is that they have become so highly valued on a global perspective that pricing has risen to unattainable levels for a typical domestic investor. When ULI reconciled its survey results, it became clear that markets were moving in the rankings as a result of market participants’ need to take a more offensive approach to the market or to set up a desirable defensive position.
The cities in the top 10 are a combination of traditional higher-growth markets that offer favorable business conditions; markets that were slowed by the global financial crisis, but are now in a position where demographics may drive future growth; or new markets that appear to be positioned to move up a class in the investment strata.
ULI’s 2016 markets to watch, and the reasons they made the list:
- Dallas/Fort Worth – Impressive employment growth driving the local economy, supported by a business-friendly environment, attractive cost of doing business, and a cost of living that has allowed the market to enjoy many corporate relocations.
- Austin – Continued strong economic and real estate performance and a city that benefits from diverse job creation ranging from service jobs to higher-end STEM and TAMI positions. It remains an attractive place to live for all generations, but there is some concern the market is growing faster than local infrastructure.
- Charlotte – Good job and population growth, coupled with development of urban centers, has made this market attractive to residents. There is some concern that the concentration of the financial services industry may not offer the same level of growth as some of the more tech-oriented markets.
- Seattle – A diverse industry base that is benefiting from the growth of TAMI industries. While growth has been strong enough, the only potential risk is if it can sustain this current pace.
- Atlanta – Experiencing strong growth in key economic sectors without concerns of oversupply. It also offers a lower cost of doing business, which is attracting corporate relocations.
- Denver – Economic strength and a location and culture that attracts a qualified workforce and a growing technology sector. Further growth will be driven by a number of public and private infrastructure investments.
- Nashville – A once up-and-comer that has now arrived, adding to the number of 18-hour cities with a growing and vibrant urban core, yet offers attractive suburban locations. Similar to Austin, there is some concern that infrastructure won’t be able to keep up with growth.
- San Francisco – Even though this Top Sixer is seemingly at its peak in occupancy, rent levels, and valuations, respondents noted that if it ever drops, the chances are it will bounce back even higher—so they’re keeping this one on their top 10.
- Portland, Ore. – A market that may rise from secondary to primary status in 2016, due to its being at the forefront of what makes an 18-hour city. However, there is some room for improvement in public and private investment and the local development community.
- Los Angeles – Another Top Sixer to make the list, its pricing and fundamentals are strong, but relatively mild compared to those in San Francisco. There’s potential for future growth in select neighborhoods, and both multifamily and retail are undersupplied.