The contours of an urban renaissance—long in the making—are quickly coming into focus. Massive societal and economic changes are converging to create a new urban reality, a transformation of importance to the millions of Americans in the nation’s metropolitan areas. Demographic changes are creating markets for mixed-use and mixed-income models of urban design. Job growth in advanced industries fits the preferences of knowledge workers attracted to urban neighborhoods. The “smart” institutions of the new economy, such as research universities and medical centers, are becoming the knowledge anchors of cities, spinning off employment, contracts, businesses, residences, and public amenities. Global energy challenges are putting a premium on core city locations and on public transit. New technologies are matched to creative financial architecture to advance concepts of sustainability, walkability, and affordability.
As a result, cities are becoming denser, more diverse, smarter (as measured by the skills of their residents), safer, more dynamic, more interconnected, more social, more environmentally aware, more attractive as 24/7 locales, and more essential to the nation’s prosperity.
The city-building professions―urban planning and design, architecture, municipal governance and administration, real estate development and construction, capital and finance, transportation and infrastructure―must understand how the following individual trends are together creating a new moment of opportunity for the nation’s metro areas.
1. Building for Sustainability
Community builders must be attentive to the use of building materials and systems that minimize environmental impacts. Important contributions have been made by individual builders, advocacy organizations, and nonprofit community builders who have designed prototype homes and other buildings using more sustainable materials, HVAC systems, water conservation, landscaping, and construction methods.
Urban leaders must also seek to make entire cities contributors to environmental solutions. As the starker dimensions of climate change become more widely understood―hotter daily temperatures, longer heat spells, drier conditions in some regions, and more violent storms with accompanying inundations in others―public and private sector leaders will confront higher pricing for scarcer water allocations, higher energy costs for more air conditioning, worker productivity losses, and the insurance costs of flooding and other storm damage from rising sea levels and more powerful storms.
2. Embedding Technology in Urban Real Estate
The wave of automation is growing. Home systems currently exist to calibrate landscaping to weather conditions, to monitor energy use, to tighten security, and to communicate with light switches, locks, and other devices in a smart building via a remote tablet or smartphone app. At the city level, computer automation can help first responders arrive faster, assist police in reducing crime, help decrease peak energy loads, and schedule public transit arrival times. The advent of cloud computing makes it possible for millions of residents to be connected to “the internet of things” in their smart homes and for entire cities to be interconnected.
3. Harnessing Advanced Industries and Anchor Institutions
The advanced industries powering the new American economy apply research and development to computers and communications equipment, aerospace products, medical equipment, and pharmaceuticals. They employ a workforce skilled in science, technology, engineering, and mathematics. In many metropolitan areas, these advanced industries work in concert with anchor institutions—research universities, world-class medical centers, corporate headquarters, research and development complexes, and arts and cultural institutions. As these advanced industries become America’s crucial drivers of global competitiveness, urban real estate professionals should prepare to build the needed facilities, and incorporate the unique building features and spatial designs these advanced industries and anchor institutions will require.
4. Modernizing Urban Infrastructure
In the core areas of many U.S. cities, water lines are more than 100 years old and pose health and safety risks. Vehicular traffic lurches along rutted roadways and congested arterials. Public facilities, whose deterioration undermines public confidence in urban governance, include aged airports, dated rail stations, dingy parking structures, and crumbling bridges, tunnels, and underpasses.
America’s municipal and metropolitan leaders must make extensive investments in their basic infrastructure if they are to position cities as platforms for economic competiveness. Cities must focus on the three levels of infrastructure that will create the conditions to draw future private investment to urban areas:
- The existing infrastructure in need of repair, such as bridges and tunnels;
- The modernization of existing infrastructure with new technologies, such as interactive power grids linked to smart appliances; and
- The installation of completely new forms of infrastructure for the future, such as high-speed telecommunications lines.
5. Addressing Mixed Incomes Positively
A well-functioning city needs a mix of housing types. The increasing cost of urban housing in many cities has pushed lower-income and even middle-income workers to the metropolitan periphery. Developers and public officials must make affordable and workforce housing a priority. An important way to add affordable and workforce units is cross-subsidization within a project, with a developer voluntarily or mandatorily including a percentage of such units. It has been demonstrated that distribution of those units within a project has no negative effect on the marketability or functionality of the community, and the positive effects for a city are important.
6. Preparing for Demographic Trends
Over the next 30 years, the population of Americans over age 65 will double, and the number of those over 85 will triple. Minorities are already approaching 50 percent of the homebuying market and in many areas account for 100 percent of population growth. These are just two indicators of the pace of the demographic transformation sweeping across the United States.
The Washington, D.C.–based American Seniors Housing Association reports that the demand for appropriate housing for seniors will increase from 18,000 units per year in 2015 to 82,000 per year in 2030. The greatest need will be for types of for-sale and rental properties for the 90 percent of aging Americans who say they want to age in place.
Also, the rapid growth of minority populations means that residential builders must consider affordability, floor plans, locations, and community amenities that respond to such factors as larger family sizes, multigenerational families, younger average ages, and specific cultural preferences.
7. Taking on Density
Greater demand for core urban sites almost always means higher land prices. To offer competitive rents or sales prices, increased density is often the only business solution. Density, however, frequently generates a negative response from nearby residents and from public officials who oppose large, overbearing structures and increased traffic. But good design can be an antidote to such opposition. Creative architects can break up the mass of large structures, altering heights and varying elevations and exteriors, as well as reducing the unsightly imposition of parking structures. Careful attention to density can generate positive urban dynamics, including more vibrant neighborhoods and more cost-effective public services.
8. Making Walkability Real
Many surveys show that residents place a higher value on homes within walking distance of stores, public spaces, and employment. Developers and planners must imagine designs for urban sites that can be assembled into a compatible pattern of mixed uses to create an urban village. “Villages within the city” create a sense of identity for submarkets within an urban area, encourage resident involvement at a human scale, and create loyalties to neighborhood businesses.
9. Adding Transit-Related Value
As urban cores become denser, public transportation systems can reduce traffic congestion and automobile pollution, enhancing the neighborhood environment. A light-rail system that carries 120 passengers along a city arterial street removes 60 cars with two passengers each from the city’s streets. Mass transit stops are obvious locations for urban residential, commercial, and office developments. Developers should probe beyond the obvious sites to explore the potential of underused properties along transit lines to unlock the value of transit-related real estate.
10. Incorporating Public Spaces and Amenities
James Rouse, the revered city builder, once said that he designed Baltimore’s Inner Harbor principally as a venue for people watching. He understood the importance of creating common areas where people can safely relax and enjoy the urban setting. In a commercial project, common space may take the form of a sitting area with internet connectivity; in a multifamily community, it may be meeting spaces for professionals who work at home. On a public street, common space may mean wider sidewalks or a lighted bus stop shelter for transit passengers. Plantings, water features, street furniture, public art, green open spaces, exercise equipment, performance stages, jogging paths, children’s play equipment, and pet parks are all desirable features that help make the urban streetscape more humane and vital.
11. Using Creative Design
Good design is a worthy goal for private developers and public city builders alike. It should be the goal for every kind of structure at every price point. Urban designers today can use materials of various textures, weights, and colors; light patterns; nontraditional shapes and soaring lines; water features and foliage; and nearby topographical features to make projects attractive, functional, and economically feasible.
12. Financing Urban Real Estate
It is possible to anticipate some likely developments in capital flows to urban real estate. For example, the flow of global capital to U.S. metropolitan markets will accelerate because foreign investors value the relative stability of U.S. markets and are particularly attracted to the “gateway cities” with which they are most familiar. Institutional investors with actuarial obligations for pension and retirement funds will continue to be attracted to the higher returns associated with various forms of real estate as they seek to achieve acceptable overall returns at a time when bond and equity returns underperform. Some investors―institutional funds, family offices, and high-net-worth individuals―may seek to bypass capital allocators and instead make direct investments in properties. For those investors, relationships with highly competent real estate operators who manage strong pipelines of attractive projects and who have stellar records of performance will be especially valuable.
13. Cementing Public Sector Partnerships
City governments have become very capable drivers of economic development, using every municipal resource to create comparative advantages and to offer incentives. These economic development calculations almost always involve urban real estate decisions. Cities provide property tax abatements to make the economics of industrial sites more palatable for relocations or expansions. They offer cash outlays from bond programs to offset the construction costs of apartments, and they often add further incentives for including percentages of workforce or affordable housing units. Public authorities commit to investing in physical infrastructure to support employment-generating projects, including approach roads, freeway exit ramps, transit stations, water extensions and pumping stations, electrical power generators, land acquisition and assembly, and leases of public land or facilities. This kind of aggressive involvement by the public sector in real estate transactions is likely to increase as cities become more determined to be masters of their economic destinies and to connect permanent jobs with the urban workforce.
Opportunity for City Builders
Many of the trends responsible for America’s urban renaissance have been coming for years. However, demographic shifts, technological advancements, and sustainability concerns have all accelerated recently. Taken together, they create a new professional reality for city builders. The need to adapt older urban real estate to modern purposes—and the imperative to develop new forms of the built environment in cities—ensure that urban real estate investment will be an essential enterprise of long duration. The volume of capital required to support the scale of both recycled uses and new developments will require resourcefulness in aligning traditional sources of capital for urban projects, as well as creativity in applying capital in new ways. Urban real estate is a powerful domestic engine that will help determine the shape of the national landscape and make bright futures possible for urban professionals skillful enough to imagine, invest, and execute wisely.
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