The Urbanization of Suburbs
Broad demographic trends point to continued urbanization. What’s perhaps surprising, though, is how even suburban office parks are trying to emulate their city-center cousins
Home Buyers Want Cities
Several observers — including Robert Shiller, a 2013 Nobel laureate in economics, professor of economics at Yale University and the co-creator of the S&P CoreLogic Case-Shiller Index for housing — have pointed to how demand has recently skewed toward homes in central cities, rather than in more spacious distant suburbs.
Some have warned, however, that recent residential construction has largely been targeted toward affluent baby boomers, i.e. larger and more expensive dwellings that don’t really help the market for first-time, young adult buyers. Surveys by the National Association of Home Builders show that less than 20 percent of new construction in recent years has been for entry-level properties, whereas before the recession that share typically hovered around 30 percent.
That may be changing. Urban infill projects, while always a bit more challenging for permitting processes and other logistics, have usually been “worth it” for real estate investors with a solid knowledge of the current market (added-value features, current pricing, etc.). The current market sees that trend potentially standing out even more.
First-time, young adult buyers represent an opportunity for home flippers — and apartment/condo developers/rehabbers — to profit from value-add opportunities in areas appealing to that millennial aesthetic. Many of the hipster “hot spots” are urban core neighborhoods with plenty of older homes in need of major renovation. Active real estate investors who specialize in fixing and “flipping” homes to such young adult buyers may have a real entrepreneurial opportunity to take advantage of the current disconnect between demand and the supply being furnished by many ground-up developers.
Many have noted how a dearth of a supply across markets — not just the high end ones — has hindered sales volume in many regional real estate markets. “There is just not enough housing,” said Michael Marini, who focuses on urban infill projects. Marini builds clusters of sleek, modern single-family houses that are just inches apart from each other.
Marini decided there was less risk in these urban infill projects. An added plus — people buying in those neighborhoods tend to appreciate good design, he said. “We can’t do this product in some cities. It wouldn’t be well received.” Still, he thinks that too few new for-sale homes are being built, relative to demand. “There’s room to run,” he said of prices.
Suburban Office Complexes Are Following Suit
Property owners in some suburbs are beginning to invest heavily to remake bucolic corporate campuses built during the 1980s and 1990s — adding glass facades for natural light-filled offices and retail space for restaurants and cafes. They also are rolling out features such as modern fitness centers, bike-share programs, walking trails and spacious lobbies as spaces to socialize.
“It’s all about landlords trying to attract tenants, and tenants trying to attract millennial recruitment,” said Daniel Loughlin, broker lead of real-estate services firm JLL’s New Jersey office.
Onyx Equities, for example, is doing a makeover at a building in Morristown, N.J. Onyx is putting in a glass facade, new mechanical systems and a new lobby, as well as amenities such as a cafeteria and conference areas. “The only buildings that are leasing are buildings that landlords are investing in,” said Tim Greiner, executive managing director at Newmark Grubb Knight Frank, which is leasing the building for Onyx.
J.C. Penney Co. — not always known for innovation in retailing — has nonetheless recently been a trailblazer when it comes to real estate. It is redeveloping its suburban campuses in Plano, Texas to denser, more urban settings, where businesses can give employees the option of living, working and playing with minimum time spent in automobiles. And an older campus that it sold a few years ago has already lured Toyota Motor Corp.’s North American headquarters from California as well as major operations of J.P. Morgan Chase & Co., FedEx Corp. and Liberty Mutual Insurance Co. That section will have a mix of apartments, stores and restaurants called Legacy West. “Legacy West is urbanizing the suburbs,” said Karen Whiteknact, a senior vice president with Boston-based Liberty Mutual.
As a younger workforce gravitates to more downtown settings, companies are feeling isolated in glass and steel headquarters tucked into acres of parkland and forests. “The smart money is buying these campuses cheap, opening them up and tying them into communities,” said Joseph Brancato, a principal of Gensler, an architecture firm working on transforming four different corporate campuses.