Posted: May 3, 2017 by Eli Randel, Director of Business Development
SECOND AND THIRD CITIES
Era of the Secondary and Tertiary City – Which Cities are Poised to Prosper This Cycle?
Last week I touched on why cities will see more activity than suburbs for a cycle in Pre ICSC Retail Forecast – Part II. In preparation for ICSC, we are putting together several prediction pieces starting with last week’s opener. Driven by economic and societal trends and a quest for the next great market, I believe the next cycle will see several secondary cities emerge as major markets and several tertiary cities grow into thriving secondary cities. Based largely on my personal travels, some demographic trends, interviews with institutional investors, and a thumb in the wind, below are some markets I believe will prosper next cycle. What do these cities have in common? Most of them have access to young talent with neighboring universities, culinary and social scenes illustrating a larger societal desire for experiential living, good climates demonstrating a move away from iconic cold-weather markets, and they all possess what I’ll vaguely call “soul” posing the question: does growth create soul, or is soul discovered and then pursued?
SMALL CITIES POISED FOR A GROWTH-SPURT (MSA Rank In Population)
Orlando & Tampa (MSA #23 and MSA #18)
With warm weather, affordable housing, growing job-markets, access to universities, signs of a cultural soul beyond Mickey Mouse, and a likely flock of baby-boomer retirees, these two Florida cities are poised for a growth-spurt on top of the impressive growth they’ve already experienced (14.38% and 8.94% population growth from 2010 to 2016). No longer just the home of boy-bands and Mickey Mouse, Orlando and nearby Tampa are becoming places for young people to start their lives. Job creation, good weather, and reasonable housing costs have created a good quality of life and both cities are poised to emerge as more significant markets in the coming years. I also expect to see many baby boomers retire in the area (nearby Villages had the highest growth of any MSA) bringing service jobs and an economy with them.
Charleston (MSA #74)
If you haven’t been to Charleston: go! It’s a great city with a thriving culinary scene, two historic universities, lots of history, and emerging industry. The polite residents (including Bill Murray) will tell you the growth is scary but exciting and while downtown Charleston has become expensive, surrounding towns offer reasonable home prices and a good quality of life. Boeing continues to grow its operations with three Charleston campuses, and Volvo is building a $500MM manufacturing plant (their first in North America) bringing thousands of jobs to the area. Charleston has also increasingly become a retirement location bringing new residents and ancillary jobs with them. The small city with 14%+ population growth from 2010 to 2016, is home to nationally renowned chefs and is becoming more than just a vacation spot with landscape to grow.
Boulder (MSA #155)
Always a great college town, Boulder is watching as Google builds a 330,000 SF campus which will house approximately 1,600+ employees. It’s believed Google will expand even more and that other companies will follow them into the market. The result has been a scorching housing market and strong population growth. Likely never to become a major market, the small-city is growing in wealth, population, job opportunities, and culture. Green tourism has also brought the city newfound activity in recent years and while the football team isn’t as good as it was when I was young, UC is a great school which attracts talented young students from Colorado and beyond.
Austin (MSA #31)
No secret city here – Austin benefits from being the state’s capital and also home to the University of Texas and its approximate 40,000 students. Always a stable and likeable town, the last ten years have also brought a vibrant tech market bringing high paying jobs, a strong housing market, and improved income demographics with it. In addition to local headquarters like Dell and Whole Foods, Amazon, Google, Facebook, and others have turned to Austin to house many of their operations which has also sprouted a start-up scene of new companies. The result is an impressive 19.82% population growth from 2010 – 2016 – the second most of any MSA and most by an MSA with 1MM+ people. Add the culinary and music scenes (original home of Stevie Ray Vaughan, Janis Joplin, and Willie Nelson), attraction of no-state income tax, and a landscape which offers room for development, and you have a recipe for a city that will continue to grow and I predict will someday have a pro-sports team.
BIG CITIES POISED TO GET BIGGER
Denver (MSA #19)
By no means a new city, Denver has seen excellent population growth (12.17% from 2010 – 2016) and has gained national recognition in recent years. Most of us can name a friend or acquaintance who now lives in, and loves Denver. A strong real estate market, green tourism, and an emerging tech scene have benefited the city’s economy. Denver is considered a mecca for skilled job seekers searching for employment as the many growing businesses are finding a shortage of skilled labor. Nearby Universities and a thriving NFL team never hurt a city’s appeal and Denver has both.
Detroit (MSA #14)
I debated including Detroit. Many may not know how hot and active Detroit has been for the last five years and my instinct is to think that it can’t be sustained, but Detroit native Dan Gilbert and his Quicken Loans are committed to the city. Beautiful suburbs which didn’t suffer the way other parts of the city did during its decline, existing infrastructure, loyal residents committed to the city and oozing “heart”, a flock of young professionals from schools like the University of Michigan who used to have to move to Chicago to find post graduate work, and the dedication of some deep pocketed investors will help Detroit sustain its growth. If just one of Gilbert’s many portfolio companies “pops”, it could be a major growth creator for the city.
Dallas (MSA #4)
Already a great American city with the 4th largest population of all MSAs. Dallas isn’t a small town, but I believe Dallas is poised to continue its growth (2nd highest 2010 to 2016 population growth of the top 20 MSAs with 12.56%). Dallas has always had a stable economy which keeps housing costs from dropping too far or rising to high. Recently, the emergence of Deep Ellum – an arts and entertainment district near downtown – and the more polished Uptown, have brought great bars and restaurants enticing young professionals to the market. The many major construction sites you’ll find in the center of downtown signify vertical growth and new life to the once daytime-population-only Downtown. With no state income tax, several growing companies and industries, vertical growth vs. sprawl, food and social scenes, and relatively affordable housing, many are finding the American dream in Dallas and the city is poised to continue growing even if it may be stuck behind Chicago at #4 for a long time.
Miami (MSA #8)
It was very tempting to leave this often-frustrating city – my home for the last 12+ years – off the list. Miami is challenged in many ways: an odd cultural mix more comparable to a salad bowl then a melting pot, rising tides threatening its shores and beaches, dependence on foreign investment, condo oversupply, and a lack of new industries or job creators. However, long-time residents of the city know that following lulls the city always emerges stronger than ever. Warm weather, no state income tax, retirement popularity, proximity to Latin America, and tourism always seem to propel the city in times of need. Whether through retail or distressed sales, the many developments under construction will be filled. The Atlantic to the east and the everglades to the west prevent sprawl and force the city to grow vertically and stay centralized. Long-time famous northeasterners are slowly migrating to the city even if it’s only for 6 months at-a-time to exploit state income tax savings. An improving food scene and possibly the hottest arts and entertainment district in the nation (Wynwood) have brought life to the city. In many ways Miami reminds me of the New York of my youth: entrepreneurial, at times dangerous and cutthroat, colorful, diverse, and vertical. Institutional capital loves Miami and there is plenty of room for growth once the city pushes through some of the current challenges it faces. I would not be surprised to see Miami as a top 5 largest MSA within ten years (unless it’s underwater).
WHAT DOES IT MEAN?
While I did research and spoke with many people to come up with this list, it’s purely speculation, but if accurate, look for the real estate in these markets to appreciate significantly as demographic demand puts pressure on supply bring vacancies down and rates up and institutional money follows movement and trends and competes for assets in these towns.
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. Email Eli