Posted: April 26, 2017 by Eli Randel, Director of Business Development
ICSC TREND PREDICTION II
Urbanization Will Dominate Suburbia In Population Movement Next Cycle
In preparation for ICSC, we are putting together several prediction pieces starting with last week's opener Pre ICSC Retail Forecast - Part I.
Based on anecdotal data, interviews with institutional capital investors, and my personal belief, I predict next cycle will be one in which urbanization pulls many from the suburbs inward. This does not mean suburban real estate will drastically suffer, in fact, the result will create new opportunities and like many trends, when activity flows disproportionately in one direction, space becomes crowded eventually pulling the pendulum back to the less crowded market.
Here's are some reasons why urbanization will occur:
- Population-growth and tired infrastructure have lengthened commutes. In a survey of thousands of renters, "Proximity to Work" was their #1 locational decision (more than "School Zone" the expected #1). People will need to move closer to job-centers to maintain their proximity to work preferences.
- Automation will hit suburban markets first forcing job-seekers inward. Corporations don't intend to pay CBD rents for automated work. Those pseudo-outsourcing activities will be outside of cities forcing skilled workers and job-seekers inward to CBDs.
- Oversupply in some city-centers will create strong buy and rent opportunities. Thousands of condos and apartments need to be bought or rented and many of those opportunities will emerge in overbuilt downtowns while many suburban markets are still unaffordable for most.
- At first glance, baby-boomer retirees (of which there will be many) appear to favor more urban lifestyles than traditionally. Life expectancy is longer than ever and retirees - many of whom spent much of their lives in suburbs - like amenity rich cities with stuff to do. Suburban markets will still see retiree inflow, but cities may see unprecedented migration bringing ancillary jobs with them.
- Generation Y, like their recent predecessor generations, gravitates toward cities. Our nation's Walden values of the past have faded and the tech generation likes the activity and buzz of the city. It's also likely Ys will wait as long or longer than millennials to marry and have children. When they do, raising kids in cities will become increasingly common (at least during infancy).
- Living in cities is easier than ever before: ride-sharing platforms and (slowly) improving public transportation have somewhat eliminated the need for a car; delivery and e-commerce have lightened the need for proximity to grocers and other retailers; work-live-play developments have emerged across the nation keeping people's lives within a tight radius; and many cities once considered to have "daytime-population-only" downtowns, now have vibrant city centers with social scenes and increased options for living.
WHAT IT MEANS FOR CRE
Pent up institutional and foreign capital, more familiar and comfortable with the stability of major markets, will continue to flow to cities pricing out most entrepreneurial capital investors. Following a corrective period, infill land will trade at astronomical prices and bite sizes exceeding friends-and-family equity buckets. Given overall demographic growth and limited supply resulting from moderate development last cycle, most suburbs will remain healthy from a real estate standpoint with some softening in occupancy and rate growth during a corrective period. If the economy hits a road-bump, suburban office vacancies may spike, as small independent businesses rising with the tide sometimes go back to working from home-offices when their business softens. Cities will eventually sprawl and begin to bleed into nearby suburbs offering buy opportunities for those who can predict and shape the path of movement. Suburban yields may increase as a result of less competition and tough underwriting translating to higher costs of capital, offering premiums for financeable entrepreneurial investors willing to stomach some volatility and actively manage assets.
Next week we'll discuss which cities stand to gain the most, and which may suffer.
Comments and feedback are always welcome. Email Eli
Eli Randel is Director of Business Development based in CREXi's Miami office. Eli spearheads CREXi's growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone's Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.