03:41 pm
10 June 2016

Urbanization Remains Compelling Real Estate Investment Force

Urbanization Remains Compelling Real Estate Investment Force

Investment in real estate in the United States is increasingly dominated by urbanization.  Millennials and their older counterparts are seeking to live, work and play in dense urban areas – preferably in major gateway markets such as New York, Washington, D.C., Miami, Austin, San Francisco, Los Angeles and Seattle.  The U.S. Census Bureau reports that in 2011, for the first time in more than a century, the rate of population growth in urban centers was greater than in the suburbs.

This trend is driving investment in new projects – residential spaces featuring micro-units situated near work, entertainment and public transportation options. Investors are also looking increasingly at older properties that can be recast with an eye towards maximizing space along with the creation of new ground-floor retail and lifestyle amenities. With some of the most desirable cities unable to extend beyond existing boundaries, infill development has become not only attractive but also imperative.

Washington, D.C., one of the “hottest” real estate markets in the country and nationally ranked fifth overall for investment in 2015 by the Association of Foreign Investors in Real Estate, has recently seen two such projects undertaken. City Center, a 10-acre mixed use project located in the heart of the District, opened for business in 2014 with 458 apartment units, 216 condominium units, 520,000 square feet of office and high-end retail offerings including Hermes, Loro Piana, Salvatore Ferragamo, Kate Spade, Tumi and Hugo Boss. With a sprinkling of popular restaurant and wine bars, City Center was near sellout in all categories barely a year after opening.  Qatari Diar Real Estate Investment Co., the real estate investment arm of the Qatar Investment Authority, provided principal investment backing for the project.

The Wharf, a remarkable mixed-use development on 27 acres of Potomac riverfront in the nation’s capital broke ground in March 2014. The project, a benchmark urban waterfront reclamation effort co-developed by P.N. Hoffman and Madison Marquette, when complete, will offer 3.2 million square feet of residential, office, hotel, retail and cultural space with underground parking, piers, marinas, parks and public spaces. The Wharf creates a new neighborhood in a classic riverfront location – a short walk from the L’Enfant Plaza and Waterfront Metro stations on the Yellow and Green line and some of the city’s most noted landmarks and museums.

Micro-units are not only defining new residential space. Creative office design and “micro-offices,” the latter frequently found in shared space office buildings have become a magnet for investors and users alike. Developers are racing to find buildings that can be adapted for such use – and major clients of office space such as law firms, technology companies and government contractors are shrinking their office space by creating open floor-plans that allow their workforce to operate within a much smaller footprint.

Cities across the country are also experiencing the rebirth of a multitude of dynamic neighborhoods.  New York City has seen values soar not just in all parts of Manhattan – from Wall Street to Harlem – but also in an explosion of interest in Brooklyn, Queens and the Bronx. Areas that were once industrial or sidelined by poverty are re-emerging as sparkling pockets of residential and professional activity. Cultural life and young families have followed in these self-defining neighborhoods – with art galleries, concert halls and recreational spaces taking over abandoned warehouses and parking lots.

However, any report on top real estate investment areas in the United States would be remiss to overlook the close-in suburban sub-markets.  As millennials age and look to raise families, there is no doubt that these quintessentially all-American destinations will have appeal. For many young professionals, the lure of enlarged space and proximity to urban attractions remains a compelling selling point. Cities such as Miami, Washington, D.C., Houston and Los Angeles have robust inner cores but also feature some of the fastest-growing suburbs in the country. Global investors have explored and invested in projects throughout Dade and Broward Counties (Florida); Washington, D.C.’s tri-state suburban region and the beach and hill communities around Los Angeles.

Many of these suburbs are experiencing a facelift when it comes to retail and personal services and amenities. In order to satisfy the accessibility factors that millennials seek, these areas are now clustered increasingly around retail, entertainment and transportation options that make it easy for residents to satisfy all their needs in a single pedestrian or bike-friendly expanse. Bethesda Row, just outside Washington, D.C., is a prime example of this trend with a broad array of retail and dining options located near office and residential developments – all clustered near a Metro stop. Other examples of such inner suburban development can be found in cities like Seattle, San Francisco, Houston and Miami.

The growth of interest in such suburban sub-markets is a natural outgrowth of urban intensification and shows no signs of slowing. For the future, investors will find value in these locations as well as in city neighborhoods where the population will continue to grow and where innovation districts can best be re-positioned as magnets for a skilled workforce seeking optimal value in lifestyle and convenience.