The
Urban Land Institute (ULI) and
PwC just released “
Emerging Trends in Real Estate" 2016 and there are quite a few insights and takeaways for commercial district practitioners. These come in the form of market-based opportunities and threats that will need to be considered - and acted upon - in the coming years.
Here are a few of the findings, as well as some practical takeaways on the impacts and actions that might be necessary....
Opportunities continue
to grow in secondary markets – what ULI calls “18-hour” cities. This is great news for many smaller downtown's looking for investment. These are places that still
provide investors better upside opportunities, in part because the dense primary markets are already stiff with investor competition. 18-hour cities
offer lower costs while maintaining some if not all of the excitement of
24-hour cities. A great competitive advantage is brewing here.
Takeaway: If you are in one of these “18-hour” cities, places like
Nashville, Austin, Denver, San Diego…the time might be ripe to revisit your
district with an eye towards redevelopment opportunities. Now is the time to find
investors and developers who might be more receptive to your pitches.
For all the hoopla surrounding downtown development, suburbs are still a
force to be reckoned with. The report suggests that it will only be a
matter of time before millennials, many who have deferred starting families,
will start heading out to the suburbs to raise families. While 37% of
millennials indicate a preference for urban living, we all know how quickly
these preferences change when people become parents. That might not be good news for cities that don't stay ahead of these changing preferences.
Takeaway: Downtown – and its surrounding urban neighborhoods
- need to start thinking about how to meet the needs of millennials as they graduate
from roommates to partners and families. This will require thinking more
holistically. How are the local schools – all the way from elementary to high school? Is the neighborhood safe? Is housing affordable and adequate?
And how is the physical environment? Are there safe bike lanes for tots who are
learning to bike – i.e. dedicated lanes rather than sharrows? Are sidewalks and
crossings - and the whole pedestrian environment for that matter - safe for those ages “8 to 80”, as Gil
Penalosa founder of 8 80 Cities, likes to say. Are there
adequate playgrounds within walking distance of people’s apartments and homes? While the report didn't mention this explicitly, let's not forget the growing senior demographic. Are these easy places to walk to grab a bite to eat if driving is no longer an option. If not, get cracking!
Work lifestyle and expectations are changing – and this is
good news for downtown and other similar urban environments. The growth in
co-working spaces is growing as the “gig economy” heats up. Is your city up to meeting the demands of these businesses and the workers they bring?
Take away: For those districts where real estate development is an opportunity - what is your downtown organization doing to remain attractive to this changing worker
lifestyle? Can your organization become proactive in helping to re-position or reuse existing assets to make them more attractive to investors looking to develop this product type? Have you thought of a game plan for how you are going to meet the needs of this growing worker segment? In 2013, the Downtown Brooklyn Partnership, the parent organization that manages three Business Improvement
Districts in downtown Brooklyn, NY, helped lead a study and strategic planning
process called the Brooklyn Tech Triangle (check out their website and plan here). The effort brought together the public, non-profit and private sectors to ensure everyone was working from one playbook when it came to
strategies and investments that would ensure that the area remained attractive to the tech employers - and by extension tech workers.
Housing in short one word: affordable. The report suggests that the lack of affordable housing for a variety of incomes is especially problematic. Recent housing production has been skewed “toward the luxury end [and] a shortfall of supply in the mid-to-lower end of the residential market is putting upward pressure on pricing…exacerbating already severe affordability issues.” Simply put, the development of luxury product has far outpaced other housing types lately, and the limited supply of more affordable options is being acutely felt in many markets. Without housing for a variety of income ranges, ULI suggests that markets will stagnate a bit. How can a business survive if its workers cannot afford adequate housing or are relegated to a lifestyle that involves a 3-hour round trip commute? As ULI states, “developing improved
housing options for everyone…is passing from the realm of “nice to do” to “must
do.”
Take away: Has your community sought to address issues of housing affordability? Do your housing incentives support the creation of
affordable housing, for people from both low and moderate income bands? Does
your downtown zoning framework outline a clear and transparent process for
development, one that offers developers the ability to ascertain costs and
development timeline with some degree of precision?
Parking - we still don't know what the future holds, but hold on tight, because change is coming. The ULI report
mentioned trends that are notable, including the decline in driver’s licenses
among younger drivers, driver-less cars, car sharing that supports a reduction in car ownership, etc., all things that will change parking demand.
Takeaway: We still don't know what this means, and quite frankly in my opinion, our zoning framework is probably not prepared to accommodate these changes without significant alternations. Keep your eye on what cities of your ilk are doing as they respond to the changing dynamics of parking.
Infrastructure investments are critical, but don't hold your breath for public money to solve the problem. The need to invest in downtown infrastructure has never been more acute. Deferred maintenance on things from the water supply and distribution, road and bridges, rail and public transportation access, etc. will be our undoing. The cities and downtowns that address these issues will retain a competitive advantage over those that don't.
Takeaway: In light of this challenge, there may be a need - and opportunity - for BIDs to take on bonding for public improvements as a benefit to their constituents. But keep in mind - in some states BIDs are restricted from or have limits to the amount they can leverage towards bonds, so the enabling legislation for your individual state needs to be considered carefully.
Food. Food. And more food.
The trend towards food as an activity, food as a lifestyle choice continues, and downtowns are naturally occurring foodie destinations. The growing demand for interesting food offerings, especially from among those
with more discretionary dollars in hand bodes well for downtowns.
Takeaway: Is your city positioned to take advantage of this trend? Food destinations are usually places where food offerings are clustered. The experience of choosing a place to eat become almost as interesting as the meal itself. In some places these are called "restaurant rows", though food trucks are muscling in on restaurant territory in some places. Is your organization marketing your food options adequately through social media? Do your events give food establishments opportunities to introduce themselves to new customers? Have you found ways to add complimentary experiences - including street buskers, nice places to stroll after dinner...what I call ambient or impulse entertainment? Since most dining happens at night - what is the arrival experience? Is parking adequate and is it safe and comfortable to walk to and from a car? Can you encourage retailers to remain open later on some nights to give diners another thing to do before or after they eat? The list goes on...
Big banks are getting bigger, while small banks are specializing, and the guy in the middle will have to choose. What this means is that financing for smaller projects may become harder because they won't attract the big banks.
Takeaway – Don't despair, this means that regional banks will likely fill in the gap. Have you developed relationships with your local
regional banks? Do you have access to – or can you create – dedicated lending
tools to help promote development and investment in your district? Projects in
the $20 million to $50 million range are what ULI suggests are the sweet spot
for smaller investments. Have you looked at your district with an eye towards
cultivating developers and projects – either new development or reuse – that meet
this criteria?
Finding a way to incorporate these trends into downtown and commercial district strategic planning efforts will remain critical in the coming years. So good luck!
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