Richard M. Rosan
11/01/2004
Fed up with long commutes and traffic gridlock, an affluent group of urban pioneers is opting for the convenience of being close—perhaps even within walking distance—to work and entertainment. After years of neglect, urban centers are becoming increasingly popular as great places to live, work, play—and invest.
Downtown immigration actually accounts for only a small percentage of overall urban population growth. According to the U.S. Census Bureau, 60 percent of growth occurring between 1990 and 2000 took place in outlying areas; only 11 percent occurred in urban cores. However, approximately two-thirds of all downtown census tracts gained population during that time, including the downtowns of cities such as St. Louis, Baltimore and Pittsburgh that lost population overall.
Clearly, this movement back in, which began as a trickle of people undeterred by edgy locations, has evolved over the past decade into a new wave of residents reaping the benefits of redevelopment. Consider downtown Los Angeles. Its newly christened Walt Disney Concert Hall is within blocks of new entertainment, convention and sports venues, as well as other cultural and arts facilities. With more than 3,000 housing units added in the past year, the center of Los Angeles is becoming not only a place to visit, but a preferred place to live.
The urban revitalization trend finds its roots in changes in consumer values, demographics and household formations. Our economy is increasingly driven by creative knowledge workers who are well educated, financially comfortable and highly mobile. These young, childless professionals, along with empty nesters and immigrant households, make up the market segment most likely to live downtown. Their demographic is growing: By some industry estimates, up to 75 percent of U.S. households will have no children living at home by 2020.
Such a demographic shift is radically changing the faces of our cities. While city cores once relied heavily on manufacturing and industries as their economic engines, they now rely on these new residents for both economic and social stability. To meet the demand for housing by the incoming households, developers are converting buildings that once held machine shops and offices into lofts, apartments, live-work units and condominiums.
This is creating lucrative investment and development opportunities. The 2004 Emerging Trends in Real Estate report, jointly published by the Urban Land Institute and PricewaterhouseCoopers, ranked infill projects, typically residential or mixed-use, as among the most promising.
In fact, for-sale housing in downtown and infill locations, including condominium conversions, loft rehabs, townhouses and adaptive reuse projects, were listed by Trends interviewees as the most favored development opportunity, followed by affordable rentals in urban areas and urban brownfield restoration projects.
Downtown migration is changing the notion of “build it and they
will come.” The theme now is “build where they are.” Despite the obvious
financial potential of downtown redevelopment projects, obstacles to the fully
realized renaissance of America’s downtowns remain: high land costs, limited
land supply, difficult site assembly requirements, long chains of title and the
desire by some property owners to hold land indefinitely. One Trends respondent
notes, “We’re only in the first chapter of the changeover from sprawl to infill
and mixed-use. Many developers will be on the sidelines until they see what
works in the new environment.”
While this may be true, investors and
developers who are willing to step into the game will find the best
opportunities in cities forward-thinking enough to cater to the creative class.
A recent study by the nonprofit organization Americans for the Arts finds that
11 U.S. cities—New York, Los Angeles, San Francisco, Washington and Chicago top
the list—contain more than 10,000 arts-related businesses, institutions and
organizations. This is good news for investors, developers and property owners
in those markets, because access to cultural amenities, as well as higher
education, is a priority for this influx of new residents.
“It takes a
combination of planners, government leaders, developers and the community,”
another Trends respondent points out. “You need wise governance with a regional
view and developers who want to create something that will last.”
 | Richard M. Rosan is president of the Urban Land Institute, a nonprofit education and research group. |