America's most surprising real estate boom: Downtowns are on the rise

Forbes
America's most surprising real estate boom: Downtowns are on the rise
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Denver leaders began work on the now-trendy Lower Downtown neighborhood in 1989. The city is in the midst of a 20-year, seven-mega-project plan to expand the revitalization efforts. Click here to go to a slideshow of more downtown projects nationwide.

One of the main factors that businesses consider when deciding on where to relocate or expand is the available pool of college-educated workers. And that has cities competing for college-educated young adults. "The American population, contrary to popular opinion, is not very mobile, but there is one very significant exception, what we call 'the young and the restless,'" explains Lee Fisher, president of CEOs for Cities, a national not-for-profit organization that helps U.S. cities map out economic growth.

And there's one place this desired demographic, college-educated professionals between the ages of 25 and 34, tends to want to live: tight-knit urban neighborhoods that are close to work and have lots of entertainment and shopping options within an easy walk. In fact, this demographic's population grew 26% from 2000 to 2010 in major cities' downtowns, or twice as fast as it did in the those cities' overall metro areas, according to a CEOs for Cities report based on U.S. Census data. That is one of the reasons city planners have been plowing money and resources into revitalizing their core business districts.

"The cities that capture the mobile, college-educated 'young and restless' are the ones who are most likely to revitalize their downtowns and accelerate economic progress in their cities," says Fisher.

Take Denver. Civic and business leaders began work on the city's Lower Downtown neighborhood in 1989 with the issuance of $240 million in bonds. Today LoDo is a trendy 'hood of over 100 restored Victorian warehouses and buildings filled with art galleries, boutiques, local eateries and nightclubs. Now Denver is in the midst of a 20-year, seven-mega-project plan to expand the revitalization efforts through the rest of the downtown district.

To see a slideshow of development projects in U.S. cities, visit Forbes.com:


"We carefully evaluate what the future workforce is looking for and we incorporate those demands into what we are building," asserts Tami Door, chief executive of the Downtown Denver Partnership. Those demands span pedestrian walkways, a bike path grid, and "green" housing complexes comprised of smaller units, typically rentals. Residential buildings chock-full of amenities like fitness centers aren't in the cards. "This group doesn't want to necessarily come into the development and lock themselves in at night; they want to be out connecting with the community so they want amenities near their homes," stresses Door.

The investments seem to be paying off. Denver, relative to the rest of the county, has been a faster growing city, with a population growing by about 1.3% per year, according to Moody's Economy, and a 2012 that clocked 2.4% job growth and 3.3% economic growth.

In Birmingham, Ala., the number of residents downtown has increased 32% since 2000, with 737 planned units in the construction pipeline. A stadium for the minor league baseball team the Birmingham Barons has been built at Railroad Park, a green space created on a former industrial site next to a rail corridor. Office space absorption was positive in 2012, with net 126,000 square feet leased out, and downtown employment density relative to the southern city's size is comparable to Philadelphia's business district, local economists are quick to point out.

Yet the city is still struggling to overcome a reputation for crime. "Despite the positive, there are still people who have a negative view about downtown, particularly around the perception of crime," sighs David Fleming, chief executive of REV Birmingham, a local economic development organization. "But if you look at the statistics, the chance of being a victim of crime in the central business district is actually less likely than in the suburbs."

Other cities are getting creative with their efforts. Over the past decade, Louisville, Ky., converted much of its subsidized housing downtown to market-rate real estate, and it expanded retail offerings. Now it's adding a twist. In 2011, the mayor unveiled a public-private initiative to restore downtown Louisville's Whiskey Row. Buildings were rescued from scheduled demolition by an investor group for promising, with the help of government aid, to preserve the facades of the area's cast-iron buildings. Two years later renovations are under way, and the buildings are expected to house bourbon-themed restaurants and nightlife spots, adding to the success of nearby projects like the mixed-use Whiskey Row Lofts.

"Bourbon is an industry that is growing in Louisville, especially downtown," says Alan DeLisle, executive director of the Louisville Downtown Development Corporation. "Distillers are reinvesting downtown where they were once located off the river and we are building visitor centers and a streetscape plan that tells the story of the industry." Among the bourbon businesses coming back to the area: Mitcher's Distillery, Heaven Hill and whiskey giant Jim Beam.

Still, Louisville's downtown has a long way to go. A mere 4,500 people live in the area, according to 2012 data from the Louisville Downtown Management District, up 19% from a decade earlier and nearly 45% from 1970. Yet real estate developers, demographers and economists believe demand across the U.S. for downtown living will flourish in coming years. Louisville, for example, found that 23% of residents under the age of 31 would like to move downtown, especially as more housing stock is created.

"We are seeing a combination of the economics of infrastructure and the change in demographics give downtown housing markets more of a leg up," says Jeff Soule, a fellow of the American Institute of Certified Planners and a director at the American Planning Association.

Larger cities with more established business districts are already proving this to be the case. Seattle, for example, has welcomed a "condo craze" in its downtown over the past year, according to Dean Jones of Realogics Sotheby's International Realty. He projects that the first quarter of 2013's median home price will rise $500,000 -- up 35% from a year earlier -- as people flock to the area and inventory levels dwindle.

To see a slideshow of development projects in U.S. cities, visit Forbes.com:


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