Midsized Markets Poised for Investment Boom in 2019

October 11, 2018

Underdeveloped midsized markets are poised to be investment hot spots next year, offering more affordable housing and attracting a younger workforce, according to the Urban Land Institute’s Emerging Trends in Real Estate 2019 report. “The keyword for real estate’s future performance is ‘transformation’—in technology, in generational choices, and in a reconfiguration of preferences related to geography and property types,” ULI Global CEO W. Edward Walter said Wednesday during the Urban Land Institute’s fall conference in Boston. Several midsized markets made ULI’s top 10 watch list for real estate investment in 2019:

Urban Land Institute's Fall Meeting in Boston

© REALTOR® Magazine

Andrew Warren, far left, director of real estate research for PricewaterhouseCoopers, and other analysts said the market is expected to be healthy in 2019. But they warned that another cyclical downturn will come again in the future.

1. Dallas-Fort Worth, Texas

2. Brooklyn, N.Y.

3. Raleigh-Durham, N.C.

4. Orlando, Fla.

5. Nashville, Tenn.

6. Austin, Texas

7. Boston

8. Denver

9. Charlotte, N.C.

10. Tampa-St. Petersburg, Fla.

In other markets—such as Baltimore, St. Louis, and Providence, R.I.—investors and developers have focused on the coworking trend, creating shared office spaces that attract diverse businesses. That, in turn, has spawned more opportunity for residential and commercial development, experts said at the ULI conference.

Dougan Sherwood, co-founder and managing director of CIC St. Louis, a coworking development company, said many midsized markets are being held back because they don’t have an infrastructure that supports and encourages business growth, which is vital to expanding real estate opportunities. St. Louis is such a city, having lost more companies than it’s gained over the last 15 years. “Companies that are six months to two years old are very fragile, and they need spaces that make it easy to collaborate and thrive,” Sherwood said. “The real local activators, like restaurants, are high-risk and don’t want to be the first to move into a neighborhood. So you have to figure out how to draw the innovators, and once they’re there, others will follow.”

CIC opened a shared space called Venture Café in St. Louis six months ago, including offices, a restaurant, and a gathering area for local entrepreneurs. Venture Café’s networking program, held on Thursday evenings, has drawn 400 to 500 people weekly since it launched, Sherwood said.

But developers who want to incorporate their ideas into larger community projects must have patience, warned Doug Woodruff, senior vice president of development at Wexford Science & Technology, which focuses on college and university markets. “We don’t go in to build buildings; we go in to build communities,” he said. “These projects are like birthing an elephant—they take four to five years to realize their potential.”

But the development community must think beyond leasing potential, said Eli Hoisington, design principal at architecture and engineering firm HOK. Community planners need more than buildings for offices and residences. “You better have a place for people to go hang out after work, as well as walkability of options for transportation,” Hoisington said. “You can’t lease up a building first and then hope you can come back and address those other issues later. You need it from the beginning. The building is the last thing that happens—it’s all the other stuff we care about.”

—Graham Wood, REALTOR® Magazine