Prime commercial real estate markets like San Francisco and Seattle have enjoyed a strong recovery as the U.S. property market continues to right itself, but not all secondary markets have been benefiting from the same headwinds. That said, many investors are looking to secondary markets for more opportunities are the recovery strengthens and some smallish cities are seeing big growth. Different areas are driven by different markets. For example, Colorado and Arizona are profiting from attention from investors in the green energy industry, while Pennsylvania, Ohio, North Dakota and Louisiana are all seeing more real estate action thanks to oil and shale oil operations. For more on this continue reading the following article from National Real Estate Investor.
Top real estate markets like San Francisco, Seattle and Boston have benefitted from favorable demographics and buoyant economies during the recovery. But what about, say, Oklahoma City?
Tech and energy booms and population shifts are spreading recovery to a growing list of secondary and tertiary real estate markets—including the capital of Oklahoma—according to “The Top Trends and Markets to Watch in 2013,” a new report from the researchers at commercial real estate firm Sperry Van Ness International Corp.
“We didn’t focus too much on the big six markets,” says Diane Danielson, chief platform officer at Sperry Van Ness. “A lot of the big six markets have matched the peak of before the recession.”
That means that places like New York City and Los Angeles have relatively less upside even as the U.S. economy continues to recover.
Instead, a growing set of real estate experts are looking to smaller markets for opportunities.
“A lot of those lesser markets are more reliant on a single industry,” says Brad Doremus, senior analyst forfirm Reis Inc.
That means a smaller market may see a quick improvement if the business it depends on improves. The Sperry Van Ness report highlights “the geography of recovery,” and the implications for multifamily and commercial real estatein these smaller markets. Here are four trends it outlines.
The “New Economy”
Technology and green energy companies are helping drive economic recovery in some areas. The report calls out several markets with emerging tech clusters or a focus on green technology, including Denver, Colo.; Boulder, Colo.; and Tucson, Ariz. These markets offer lower cost of living and business start-up costs than established tech markets. “Not everyone can afford Manhattan or Silicon Valley,” says Danielson.
Fossil fuels are also bringing new jobs and new people to small cities—and even small towns. “In the most optimistic scenario, gas extraction may create as many as 200,000 jobs in Pennsylvania, Ohio, and West Virginia before the end of the decade,” according to the report.Oil drilling is bringing jobs and growth to secondary and tertiary markets from Louisiana to North Dakota. Oklahoma City, an oil town and home to the world’s two largest gas companies, is among the fastest growing cities in the nation.
The flood of young people is driving much of the energy of this recovery toward smaller apartments and shared spaces in smaller cities. Years of weak job growth and high education costs have left many young people with debts that may keep themout of the market for for-sale homes. “We’ve never had a young generation that has had an extended lack of economic opportunity for so long,” says Danielson. Also, the preferences of young renters seem to lead them to more compact spaces in walk-able neighborhood. “This generation can really downsize,” says Danielson.
New York City and Washington D.C.
Meanwhile, some of the hottest, so-called “hypercore” markets like New York City and Washington, D.C., face challenges in the near future. New federal regulations may check the growth of New York’sindustry as the Dodd-Frank financial reform rules finally take effect. Meanwhile, in Washington, the growth of federal payrolls is threatened by budget battles in Congress. “That would threaten the region’s economy and the real estate markets as well,” says the report.
This article was republished with permission from National Real Estate Investor.