Gail Bowden

Senior Investment Advisor

By Gail Bowden | January 15, 2015

A shift is taking place across America as more and more people are gravitating towards urban living and opting for the work, live, play lifestyle. After decades of “suburbanization” wherein baby boomers migrated away from the city to upscale neighborhoods offering better schools, safer communities, and gated exclusivity, the pendulum has shifted and according to the 2011 U.S. Census, the annual growth rate in urban areas has surpassed that of the suburbs. With 80% of the U.S. population living in urban areas, the opportunity at hand for business owners, along with perceptive real estate investors is great.

Factors Contributing to the Re-urbanization Movement in America

Many factors have contributed to the re-urbanization movement. Economically speaking, the recent recession along with skyrocketing transportation and energy costs caused many to seek out a more cohesive, and economical lifestyle. During the recent U.S. recession, unemployment rates in “exurbs,” or extremely far out suburbs, rose to 126% compared to only 113% in urban areas. The housing crisis and subsequent difficulty it caused for first-time home buyers trying to obtain mortgages stimulated the rental market causing many to seek out rentals in urban areas.

Demographic trends have also played a large role in this shift, and especially among millennials. Today’s millennials are starting families much later in life with a need for less space. The struggling job market left many college graduates with enormous debt and entry-level incomes, so many have opted to forego car ownership altogether and live closer to mass transit instead. Baby boomers are also choosing to downsize and simplify as they too embrace the conveniences afforded by urban living. The re-urbanization trend is multigenerational and has captured the attention of a diverse group of people interested in factors such as walkability and convenience, as well as those who wish to minimize their carbon footprint.

If You re-build It, They Will Come – CRE Opportunity Arises As More Move to the City

Vacancy rates across all markets are down to pre-recession numbers and rents have increased across the board as well, turning this into a true property owner’s market. With increased demand for multi-family units, some developers are taking advantage of the escalating apartment rental rates by converting urban office space into multi-family units to capitalize on the increasing demand. Adaptive reuse of vacant urban space has become a winning solution for those cities looking to revitalize and attract urban dwellers, as vibrant multi-family markets create opportunities in the retail market as well.

Major retailers such as Walmart, Target, and Whole Foods, have already begun to fill the urban retail gap left by suburbanization by creating mini models, such as the Walmart Express, that will fit into smaller urban commercial spaces. What they have found is a much more complex consumer base and far less square footage, which requires them to move away from the “cookie-cutter” model and market to their specific consumer base. What may sound like a simple task is actually quite difficult for larger corporations with a strict focus on the bottom line, as it requires businesses to step outside their standard business model in order to serve the needs of a specific market. While larger chains tend to be concerned more with cutting costs, independent retailers are more motivated to sell product and will be willing to cater to the diverse urban demographic.