Urban Real Estate Rises Again

By Jack Kapp

The real estate market is in the midst of a return to urbanization. In a reversal of historical trends, the population is now growing at a faster rate in U.S. cities than in suburban areas. In fact, the U.S. Census Bureau estimates that urban markets grew by 1.12% from 2011-2012, while suburban markets grew by only 0.97%. This trend is a big change from this past decade when suburban…

This trend is a big change from this past decade when suburban markets were growing quite steadily at 1.38% compared to urban markets in which growth was only about a third as much (0.42%). It is the first time since the 1920s that city living is outpacing suburban growth, which has created a whole new direction in real estate. This re-urbanization trend is redefining the type of real estate development taking place in the United States. Like other products, real estate development is influenced by market trends and consumer preferences. In past decades, the explosion of automobile ownership and deteriorating conditions in many cities induced a flight to suburban markets. However, the Urban Land Institute now explains that “studies are consistently showing…that the two major demographic groups, the aging baby boomers and their kids, the echo boomers or Generation Y, have a growing preference for more urban living.” Today, urban areas have improved the quality of life in many different ways, even compared to just a few years ago. Cities are now safer, cleaner, and feature more lifestyle amenities such as museums and cultural institutions, open spaces, and parks that provide cultural identity.

Members of Generation Y, specifically, do not have the same desire as previous generations to live in single-family homes in the suburbs. Instead, people want urban areas made for interaction and connectivity. Efficient public transportation has reduced the necessity to own a car in most major cities, making them feel less congested. Interestingly, the historic shift to the suburbs created horrible rush hours and commuting nightmares in many urban areas.  So, somewhat ironically, many people are now returning to cities to escape the traffic problems created by their previous desire to live in the suburbs. In today’s fast-paced and high tech world, Gen Y’s want instantaneous access to a variety of amenities and services—and these trends are expected to continue and even grow, as the Brookings Institution now estimates that by 2050, the urban U.S. population will contain 100 million more people than it does today.

Real estate development taking place today in urban areas is also decidedly different than before — trying to achieve much more than simply bricks and mortar. Buildings today are very different from former large-scale city developments. Investors, tenants, owners, visitors, and occupants are demanding unparalleled efficiency, superior design, and a sense of identity to the locations where they live and work.

In cities such as Miami, Swire Properties’ Brickell City Centre project packs approximately 5.4 million square feet of mixed-use space that includes office, residential, hotel, retail, and entertainment space, wellness facilities, and two-level underground parking into a mere 9.1 acres in a downtown urban core. Two-levels of underground parking is not only expensive, but in a coastal city like Miami, it is also an incredible feat of engineering. Additionally, the project will include the construction of the tallest tower in the United States outside of New York City and Chicago. For the multi-billion dollar project to meet efficiency and sustainability standards, the developer is seeking the LEED Gold certification. LEED, or the U.S. Green Building Council’s Leadership in Energy and Environmental Design, represents the industry standard in evaluating building sustainability. The project will incorporate a “Climate Ribbon,” a new technology that will, according to Swire, reduce costs and electricity use by creating natural-like trade winds flowing through public areas as a natural air conditioning. In other words, natural winds are created through the design of the structures as a substitute for an enclosed air-conditioned space. Swire also estimates that the project will save about 5 million gallons of water annually by collecting rainwater and thus eliminating the need to pump and store water in aboveground facilities.

In New York City, the Related Group is currently working on a massive $20 billion development that will revolutionize the area along the Hudson River between 30th and 34th Street. The Hudson Yards project marks one of the largest, mixed-use urban neighborhood environments to ever be built. The project will also meet LEED Gold certification and aims to be New York City’s most efficient complex ever. It will feature an array of systems including an energy peak load management system to reduce energy use, an organic waste management system, a thermal microgrid to share warm water between buildings, and regenerative elevators that will collect and reuse energy, among other environmentally-friendly features. The 12-acre project will feature entirely glass exteriors, natural curves and zigzags, as it aims to be New York’s most modern design. Additionally, the Hudson Yards project will be integrated into New York City’s former elevated freight line, which has been redesigned into a public open park, High Line Park, to help blend modern design with the city’s historic past.

Brickell Citi Centre and Hudson Yards, as well as many other urban projects, have adapted the idea of a “lifestyle development” that caters to sustaining a healthy, happy, connected, and productive balanced way of life. Part of the key to creating this balanced lifestyle is providing a sense of culture and identity to the real estate projects being built. And, to help cultivate this sense of culture or soul into new mixed-use projects, companies are looking to find adaptive uses of old properties for new developments.

In Miami, Swire’s project follows the idea of introducing a new lifestyle development to the Miami Brickell area. To help infuse part of the cultural elements that people are now looking for, the company seeks to capitalize on the new arts and cultural district developments.  Not only will people have access to live, work, eat, shop, and take care of themselves directly at Brickell City Centre, but they will also be close to the City of Miami’s nearby redevelopment of Bicentennial Park into what will now be known as Museum Park. There, people will have access to the new $220 million Pérez Art Museum Miami and the new $275 million Patricia and Phillip Frost Museum of Science, as well as the recently built Adrienne Arsht Center for the Performing Arts. Combining all of these amenities in a core urban area enables people to live in a way that incorporates a balanced lifestyle in an urban environment.

Connectivity is also playing an ever-growing role inside urban real estate developments. Offices are no longer about creating closed private spaces. Instead, walls are coming down, widows are getting larger, and the “open office” is emerging. Mixed-use projects that incorporate hotels are doubling or tripling the size of their lobbies and ditching traditional designs for comfortable modern spaces to talk, work, and hang out. All of this is happening in the name of connecting individuals to each other for increased interaction. The concept of“connected spaces” lends itself to the idea of integrating and utilizing spaces for multiple uses. For example, one might use a hotel lobby an office during the morning, a restaurant for lunch with a client during the day, and a cocktail lounge for a nighttime social event.

All of this does not mean the downfall of the suburbs. In fact, the suburbs will continue to grow, albeit that the urbanizing population will simply grow at a faster pace. And the type of development taking place in the suburbs will change too. In part, it will be influenced by the changes in urbanized real estate. New developments in the suburbs will increasingly become more mixed-use, but will be less dense than those in the city. And, similar to their counterparts, mixed-use developments in the city will try to market themselves as lifestyle developments, providing the amenities of a balanced-lifestyle.

This new development of urban real estate signifies major changes in the way people work, connect with other individuals, and the way they simply go about living their entire lives. Instead of such new developments influencing this change, it seems that changing lifestyles and the desire to live more balanced lives, as well as technological advancements are now influencing the new rhythm and design of urban real estate development. No longer do people wish to own the largest house in the suburb or own a fancy car to make the long commute to work. Today, they seek to live healthy lifestyles, with instant access to services and amenities, connected spaces, and areas of culture with the intention of becoming more integrated in the new urban core.