Michelle J. Landers
Each year, the Urban Land Institute partners with advisers and researchers at PwC to provide an outlook on real estate investment and development trends. The “Emerging Trends in Real Estate” publication is now in its 37th edition and is one of the most highly regarded forecast reports in the real estate industry.
As usual, there is much speculation about where Greater Boston finds itself in the real estate cycle. Most contributors to the report had a rosy outlook for the next 12 to 18 months, but smart investors and developers are looking towards the horizon for signs of trouble.
One of the recurring trends highlighted is the rise of the 18-hour city. Last year’s Emerging Trends report found a rising popularity for “18-hour cities” – reemerging downtowns that quiet down during the wee hours, but generate activity into the evening through their mix of shops, restaurants and entertainment. There is a strong desire to place a rising share of capital in these attractive markets. This is good news for Nashville, Austin and San Antonio, but what does it mean for a core market like Boston?
While the rise of the 18-hour cities and secondary markets may have strong growth potential, Boston ranks in the top 15 Markets to Watch at number 13; once again, it is the most highly rated in the Northeast. Perhaps following the trends, interviewees remarked that Boston is an increasingly neighborhood-driven market.
Beyond Boston
This brings us to the second major trend: the suburbs. As office and housing prices continue to climb in the core, people are taking a fresh look at the suburbs. Millennials, who have delayed marriage and family longer than any other generation, are taking a closer look at life in the ’burbs.
As ULI Boston’s recent survey of Millennials revealed, most young people do plan to purchase a home within 10 years and most of them would like a single-family home. Suburbs that can foster elements of the 18-hour city, with vibrant downtowns and mixed-use developments, will be attractive to this cohort. Close-in suburbs and smaller cities with transportation links to downtown are highly attractive to Millennials. Cities and towns within 20 minutes of downtown by MBTA or commuter rail would be wise to capitalize on these trends and attract this highly sought after demographic. Considering that in the top 40 metro areas, 84 percent of all jobs are outside the center-city core, suburban commercial real estate plays an important role in building on the existing employment base.
Greater Boston’s higher education infrastructure, young talented workforce and growth in STEM industries helped the Hub remain strong overall. The office sector had the highest outlook score – ranking eighth in the top 20 markets behind Brooklyn, LA, Austin and Atlanta. Boston also does well in retail (sixth) and hotels (ninth).
Like other major core markets, Boston continues to attract significant amounts of institutional capital. Local input ranks investor demand and capital availability as the strongest components of our local market.
It’s not the same story throughout the Northeast. The report analyzed 13 markets from Baltimore to Portland, Maine. Boston ranks above average in this group in every property sector: office, retail, industrial, multifamily, hotel and housing. Boston received an overall score of 4.21 on a scale of one to five, compared to the Northeast average of 3.54.
Portland, Maine ranked most highly of the top 75 markets for development and redevelopment opportunities. Portland also came in second to Boston in the Northeast for the hotel sector. This is not surprising, as Portland has many of the attributes of an 18-hour city, with many amenities including a vibrant restaurant scene.
Lower-ranked markets (Baltimore, Buffalo and Providence) all showed improvement over last year, illustrating that the region has discrepancies, but generally demonstrates great potential for investors and developers. n
Michelle Landers is executive director of ULI Boston/New England.
