Real estate investors are turning their gaze from traditional "gateway" cities to those that pack more growth potential, according to a new report.
"As the economy and real estate expansion prepare to stretch into another year, the market does not feel the need to get overly defensive and move into [cities] that are often perceived as safe havens," says the 2019 edition of "Emerging Trends in Real Estate" from the Urban Land Institute and PwC.
The annual report found that investors are more willing to take some risks, and aren't necessarily looking at properties in cities such as New York; San Francisco; and Washington, D.C., traditional gateway markets that are considered prime investment territory because of their status as entry points into the nation and, therefore, greater likelihood of attracting foreign investment.
In the report's list of the 79 U.S. cities viewed as providing the best real estate investment prospects, for example, Washington, D.C., is at 18, Manhattan at 32 and San Francisco at 41. Many smaller, faster-growing cities are higher up on the list. Salt Lake City, for instance, is at 13, and Fort Lauderdale, Fla., is at 17.
"My thought is these faster-growing markets may be the best places to find ... opportunities," an institutional portfolio manager was quoted as saying in the report.
The report also noted that its list of hot cities in real estate appears to be getting more volatile. Seattle, for example, was ranked first on the list in 2017, but this year sank all the way down to 16.
The impact Trump tax reform has on growth potential could also impact the list, the institute said.
"The favorable treatment of real estate by 2018's tax law may also significantly increase the activity among local investors," the report said. "The bottom line is that opportunities are available in all markets."
As things stand now, according to the institute, these are the 10 most desirable real estate investment markets in the U.S., in ascending order:
10. Tampa/St. Petersburg, Fla.
Florida is a hot area for property investment in general, according to the report, with two cities in the top 10 and four in the top 20. Tampa and St. Petersburg have benefited from strong annual net migration over the past five years and an employment growth rate well above the national average.
9. Charlotte, N.C.
All 11 markets that make up the South's Atlantic region are considered to have good potential for real estate investing, the report said. Charlotte is viewed as having a strong potential for attracting new residents in the coming years. The city also has a high labor participation rate and good employment growth, and it is seen as an attractive destination for young people.
8. Denver
The report described Denver and the rest of the U.S. Mountain region this way: "The comparatively low cost of living and of doing business is attractive to new residents and conducive to employment growth." New businesses are being created in Denver at a rate faster than the national average, although the report says this is impacting home affordability.
7. Boston
While, like a lot of older cities, Boston has a slower population growth rate than other cities on the list, it still has enjoyed a relatively good net migration of new residents over the past five years, the report says. The city's property values are also expected to benefit from a young workforce and a high percentage of residents with college degrees.
6. Austin, Texas
This city's population growth rate is expected to be three times the national average, the report said. The city also has a high percentage of young residents, which should boost labor force growth and the creation of new businesses.
5. Nashville, Tenn.
The city's attractive cost of living is acting as a magnet for businesses; employment growth is well above the national average, the report noted.
4. Orlando, Fla.
"Demographic growth, a friendly business climate and an attractive cost structure are factors contributing to the positive outlook for Florida," the report said. Orlando, the report added, continues to see growth in its entertainment and tourism industries, as well as in other parts of its economy.
3. Raleigh/Durham, N.C.
"Carolina markets continue to see a population influx [and] a lower cost of living," the report said. "Employers see the quality of the labor force."
2. New York/Brooklyn
Brooklyn was the only one of New York City's five boroughs to make the top 10. Brooklyn, as well as New York's other boroughs not named Manhattan and Jersey City, N.J., is attracting investors looking for an alternative to the core area of the city, where high pricing and an inflow of new supply is limiting investment potential, the report said.
1. Dallas/Fort Worth, Texas
Like other markets in the South's Central West region, Dallas and Fort Worth are seeing a robust inflow of retirees and young people, the report said. The population growth rate is expected to be over twice the national average in the coming years. Housing affordability, however, is starting to become a problem, the report said.
