For many companies and their would-be employees, the lure of vibrant urban life in some of the U.S.’s major cities is outweighed by the cost of living and doing business.
Now, a growing number of mid-sized cities are emerging as viable alternatives, offering many of the services and amenities of big city living without the huge price tag.
Denver, Nashville, Portland, San Antonio and San Diego are just some of examples of 18-hour cities, so-called because they tend to have downtowns that flourish outside the 9-5 workday but without the round-the-clock reputation of the likes of New York and San Francisco.
They’re increasingly on the radar of people from across the generations – but particularly Millennials and entrepreneurs – looking for well-paid work, business opportunities and affordable housing as well as employers looking for a quality workforce. As such, they tend to have above average population growth and a thriving economy. Figures from the Urban Institute suggest that Atlanta’s population is set to grow 59 percent between 2010 and 2030, while Raleigh is forecast to grow by more than 50 percent, helping to revitalize their downtown areas.
“The so-called 18-hour cities have strong development potential, less competition among businesses for prime space and lower costs than the traditional, dominant U.S. cities such as New York, Chicago and Boston. For companies priced out of primary markets, these cities are becoming increasingly attractive, as reflected by rising rents and falling occupancy rates,” says Julia Georgules, Director of Research-Office, JLL.
Denver commanded average rents of $26.28 per square foot between April and June, according to JLL’s United States Office Outlook for Q2 2016, while over in Tennessee, Nashville rents stood at $22.51 and in California, San Diego rents were $30.12 per square foot. In contrast, New York came in at $72.63 and San Francisco at $73.05 per square foot.
The California hotspot
Some 18-hour cities benefit from being close to much higher priced markets. With sky-high prices in San Francisco, nearby Sacramento has become a magnet for a migrating millennial generation.
They are lured by cheaper housing, new infrastructure (including a major new downtown stadium, Golden1 Center, for the NBA’s Sacramento Kings) as well as walkability, lifestyle amenities and the development of a thriving 18 hour downtown vibe. Between 2009 and 2013, Sacramento’s key millennial demographic of 20-29 year olds increased by 4.3 percent, higher than the national average and the San Francisco Bay Area. Millennials now make up more than 42 percent of Sacramento’s working population.
“Most millennials crave an urban lifestyle with easy access to amenities such as retail, entertainment and transit. Reinforcing the 18-hour vibe in Sacramento is the development of major new mixed-use and retail developments within the downtown core such as Downtown Commons and Sacramento Commons,” says Rob Cole, an investment sales and capital markets specialist with JLL in Northern California.
Restaurants and cafes are also popping up along the main approaches to the Golden1 Center to capture foot traffic. Retail is thriving away from the new arena, as Sacramento pushes forward with its vision of an 18-hour downtown: A Whole Foods Market is planned in midtown, while longer term mixed use developments like the Railyards and the River District are proposing to bring over a million square feet of lifestyle retail and entertainment, expanding the city’s downtown core in the process.
Cole adds: “In the past it was safe to say that no tenant would choose to locate in downtown Sacramento unless they had to. It was simply more expensive and less convenient than suburban locations. In 2015 this balance changed. Tenants are now choosing to relocate to downtown due to the perception that it will now be the true heart of the city.”
Redevelopment is also rife in other 18-hour cities. Denver has the Union Station redevelopment and the Fastracks scheme under construction while Portland has recently constructed a new pedestrian bridge, extended its streetcar system and an aerial tram that links to the new high-rise South Waterfront district.
Catching the eye of investors
Investors are becoming more confident about the prospects for 18-hour cities. According to JLL figures, more than $4.6 billion in assets changed hands in Portland last year alone, by far the highest turnover of properties in the last 10 years.
About a tenth of that transaction total was in Portland’s Skyline set of 16 iconic office buildings, several of which are also in play this year, indicating that institutional purchases are driving much of the market. Meanwhile, Denver and San Diego have already forged themselves as big investment destinations, receiving $15 billion each over the past three years.
“Just as millennials are attracted to 18-hour cities like Portland and Raleigh-Durham because of the lower cost of living relative to major markets, investors are attracted to the lower pricing for assets in such markets relative to major cities such as San Francisco and Washington, DC,” Cole says. “Compared to the traditional gateway cities, these 18-hour cities offer a wider range of investment opportunities and better yields.”
With growing jobs markets and buoyant local economies, the reputation of 18-hour cities is on the rise – so much that it’s the top trend to watch for 2016, according to a report from the Urban Land Institute and PwC. “Going forward this trend should intensify. More capital is available than a handful of 24-hour markets can absorb,” it concludes.