Why 2016 is the year of the 18-hour city – and how KC stands to gain

ULI’s Emerging Trends in Real Estate 2016, Kansas City ranks number 22 on the list of top 25 U.S. markets for development prospects.

ULI’s Emerging Trends in Real Estate 2016, Kansas City ranks number 22 on the list of top 25 U.S. markets for development prospects.

With favorable to excellent conditions in the commercial real estate market today, opportunity abounds across various markets and sectors. But experts insist that the current cycle is nearing its peak within the next three years. For that reason, the savviest investors are still playing defensively, and are looking to make wise investments by focusing on “smart, data-driven projects that address the profound changes happening in cities.”

That’s according to Emerging Trends in Real Estate 2016, the latest piece of research by the Urban Land Institute, which says that eight of the top ten cities most ripe for investment and development in 2016 are secondary cities, or “18-hour cities.”

Of the top ten markets identified as most favorable for investment – Dallas/Fort Worth; Austin; Charlotte, North Carolina; Seattle; Atlanta; Denver; Nashville; San Francisco; Portland, Oregon; and Los Angeles – eight of those are secondary markets.

U.S Markets to Watch: Overall Real Estate Prospects. Source: Emerging Trends in Real Estate 2016 survey. Note: Numbers in parentheses are rankings for, in order, investment, development, and homebuilding. Click to see a larger image.

Kansas City ranks number 22 in the report’s list of top 25 cities for development prospects. Could we see an influx of outside investment follow this trend? Most likely – and here’s why.

First-tier cities are growing more expensive by the day, and while they still remain attractive as “solid defensive plays,” prices are too high to achieve significant yields, the research states. Secondary cities, on the other hand, offer investors more affordable opportunities. Although investment in an 18-hour city is riskier, lower cap-rate compression means a potential for greater yields. Potential downsides could be outweighed by improved data and constraints on supply.

“Volatility and risk are still part of the equation, but if one were to sift through job, demographic, and business data, the secondary markets represent a better opportunity for yields,” the report says.

What will be the key to successful projects this year, both in first- and second-tier cities across America?

By 2026, half of the U.S. workforce will consist of millennials – a cohort driving more conscious development with a focus on walkable, “transit-rich communities” where offices are smaller, industrial spaces more efficient, and new forms of commercial space emerge. The most successful projects will prioritize smart design, a clear target audience, and a long-term analytical focus.

“More and more of these cities are gaining a competitive edge by positioning themselves as vibrant, more affordable places to live and work, with amenities that appeal to different generations,” ULI Global CEO Patrick Phillips said.