Buying Opportunity: Urban Places
Last week, I attended one of this region’s more popular Urban Land Institute events, the Emerging Trends in Real Estate conference. The speakers presenting on national trends verified something I’ve been hearing a lot of from experts around here in Philadelphia, which is that a lot of developers are winding down their suburban portfolios and looking to rebalance with more urban assets. My take is that this is a confluence of a number of forces, some that are related to the current recession and some that are more long-narrative in nature:
• A lot of cities have essentially completed their very painful transition from manufacturing centers (pre-truck and pre-Interstate Highway, stuff got built in cities because we used rail to move it to the customers) to knowledge centers (because that’s where the universities, hospitals, and research institutions are). That doesn’t mean crime, schools, and corruption aren’t still a problem, but it does mean that many cities have stopped free-falling and some are enjoying quite a renaissance.
• Looking more narrowly at housing, it’s the suburbs that are overbuilt, both in terms of volume as well as in mix, namely a glut of single-family unattached units; meanwhile, any demographer will tell you the rising demand will be for smaller, multi-family products. On a related note, this go-round’s foreclosure crisis is unprecedented in its particular devastation in auto-centric places like Florida, Nevada, Arizona, and California.
• Energy costs and related uncertainties make auto-dependent regions very dangerous, and developers are taking notice. By the way, have I mentioned I live in a city that is an easy day trip to both the nation’s financial capital and its political capital, without ever once stepping in a car? I promise you that that kind of access is going to get increasingly accounted for in real estate values over time.
• Furthermore, people are at their breaking point when it comes to nightmarish commutes. Dearer gas prices, time becoming a more precious commodity, and more cars piling onto highway infrastructure that isn’t keeping up - all of this points to untransited locations becoming far less popular. You do know that I walk to work, church, and school, right?
• Finally, it used to be that cities had the higher barriers to entry, between union dominance, Byzantine regulations, and brownfield issues. But suburbs are catching up: in large part because of nervous neighbors unwilling to allow even the thought of increased density, developers are seeing the amount of time from concept to completion rise in suburbs to the point that it is just as high if not higher than in cities.
So the next you hear about someone going from a suburban location to an urban location, don't think they've lost their head or are following their heart. Rather, it might just be because they see a buying opportunity.