Developers haven’t been shy about building luxury apartments in the centers of dense urban areas. Retailers are building distribution centers and warehouses closer to the center of these same big cities. And restaurateurs? When they want to make a big splash, they open in a downtown neighborhood. Why? It’s because urban areas are booming today.
That’s the takeaway from a recent report from the Urban Land Institute, The New Geography of Urban Neighborhoods. The report, created by the institute and Washington, D.C.-based real estate consultant RCLCO, found that the population growth in urban areas is nearly the same as that of suburban areas today.
That’s a big change, and is indicative of the growing popularity of city living. As the report says, a growing number of people want to walk to stores and restaurants, and they want to take public transportation to work. City living offers them the opportunity to do this.
“The national conversation has been about how fast urban areas growing,” said Erin Talkington, a principal and director of consulting at RCLCO. “But we were surprised at how uniform this is. Regardless of the size of the city, this growth was a strong story in almost every metro area.”
The report also found that it’s not just younger adults who are moving to cities.
Talkington said that while Millennials are the most visible of the people moving to cities, metro areas are also attracting a variety of people of different ages and lifestyles. The key for cities hoping to continue this trend? Talkington said they must build a diverse variety of houses to appeal to buyers of all ages.
This can sometimes be challenging. Building is expensive today, with everything from land and materials to labor putting a hurt on developers’ budgets.
When developers build apartments in the middle of urban areas, then, they focus on providing units with high-end finishes and buildings with upscale amenities such as rooftop decks, top-quality fitness centers and 24-hour doormen. This way, the owners of these multifamily projects can charge the higher rents that make them profitable.
Building market-rate multifamily projects? That’s a tough financial challenge for developers.
“The luxury buildings really have become market rate in cities,” Talkington said. “Those rents are what developers need to charge, not what they necessarily want to charge.”
There are some options for developers, though. You might think that all urban development has to be tall and dense. But Talkington said that developers can try different approaches. Those specializing in multifamily can still provide higher density, but instead of going vertical can build row houses or townhomes.
These residential units might not be quite as expensive to build as a soaring apartment tower.
“Often, that type of housing is more affordable for people,” Talkington said.
The Urban Land Institute report found that from 2000 through 2015, the population of urban places increased by just 1 percent. That’s far below the 13 percent population growth seen in suburban places during the same time.
But from 2010 through 2015, urban and suburban places grew at roughly the same rate, a big change. The report says that during this time, denser urban locations grew significantly faster than did more residential neighborhoods.
The Urban Land Institute says that more than 29 million Americans live in urban neighborhoods. That represents 17 percent of the total population clustered in just 1 percent of the land area in the 50 largest metropolitan statistical areas.
The report says that three-quarters of these urban residents live in somewhat dense but predominantly residential neighborhoods.
While population growth is increasing in urban neighborhoods, so is job growth. The report found that in the nation’s 50 largest metropolitan statistical areas, urban places accounted for 30 percent of existing jobs and 36 percent of new job growth between 2005 and 2015.
Downtowns are booming when it comes to job growth, according to the report, with the job base in established urban employment cores increasing at a faster rate than the number of jobs in any other type of neighborhood during this time.
What is fueling the population growth in cities? Talkington said that some of the population growth is lifestyle-driven. New residents to cities are seeking walkable neighborhoods and plenty of entertainment, shopping and dining options.
“They want to live in the type of places that they feel are exciting and creative,” Talkington said. “People are attracted to the energy of these places as compared to lower-density environments.”
Then there are the smaller cities that are just now seeing an increase in their populations. These metro areas thrive when they provide an appealing neighborhood with well-lit streets and nicely maintained sidewalks, and when they offer incentives to small and local businesses that can help fill in the commercial fabric, Talkington said.