Why Less Traditional Cities may be the New Real Estate Mecca

Bloomberg Cites Low Cost Cities as the new Trend in Real Estate

Real estate

In a Bloomberg report from earlier in the year,  Mitch Roschelle, a partner at the U.S. real estate advisory practice of PricewaterhouseCoopers, cited that the cities bound to grow are those with low start-up costs. “More jobs are being created in lower-cost markets,” Roschelle said. “These markets are going to be hot in terms of investments and new developments … Houston, Austin, Atlanta, Phoenix.” Bloomberg cites the USAA having placed $700 million in investments for office developments lacking current tenants.

The current trend appears to be that despite the continually rising cost of real estate, investors are prepared to brave the price tag to be a part of the larger business on a whole. And while companies such as SquareFoot are seeking more Silicon Valley-esque tech start-ups, the true money may in fact be in companies searching outside of the traditional real estate bubble to start their companies, thus sidestepping expensive markets in favor of more cost-efficient start-up cities.

Others have Contradictory Trend Trajectories

An article from Urban Land’s magazine has points which relate possible commercial real estate growth in both current city meccas, as well as possible expansion into Class B and C properties. The unexpected properties, Class B and C, refers to the expansion into novel cities, such as the Bloomberg report about the cheaper towns in Texas and the south. The secondary classes of real estate also cover expansion into suburban areas, a riskier placement than even secondary cities. Urban Land cites the recent expansion and success of Class A markets, such as in San Francisco and New York, as reason for investors to take risky investments in Class B and C cities and suburbs, leading to this expansion of commercial real estate. And for good reason — places like Austin, Charlotte, Philadelphia and Denver offer many of the same features as larger cities, at a fraction of the price.

On the other hand, Urban Land’s report continues to demonstrate that investors go where the people and the money go — and they’re flocking to the current tech meccas. With San Francisco at an excess of 4% in job gains last year, markets with a standard for job growth and demonstrated advantages continue to draw workers. Investors searching to make investments in commercial real estate have a sort of no-lose situation in large tech and financing markets, such as those in California’s Silicon Valley and Washington D.C.