In the U.S., 24-hour cities essentially translate to our gateway cities: Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D.C. Meanwhile, 18-hour cities are the markets with above-average urban population growth, plus a lower cost of living and lower cost of doing business relative to those 24-hour cities. The poster children for this emerging class of up-and-comers have been cities like Denver, Austin, and Nashville.
Back in 2017, CrowdStreet concluded the next 18-hour cities would be Milwaukee, Wis., Columbus, Ohio, Charleston, S.C., and Kansas City, Mo. These four cities were identified because they generally have had population and employment growth well above the national rate, major millennial migration, and high projected five-year Gross Metropolitan Product (GMP) growth — all key factors in how we assess potential growth in a metro area. Our soon to be published Market Views report goes into greater detail about each city, but here are a few of our key takeaways:
Millennials on the move
Forget buying a home in a 24-hour city, even renting is prohibitive for many millennials. The average rent of a two-bedroom in New York is around $3,800, meaning a New Yorker needs to earn at least $162,000 in order to spend no more than 28% of their annual income on rent. Meanwhile, the median individual income in New York City is only $50,825.
Officially the largest demographic in the workforce, young workers are relocating to 18-hour cities in search of both good-paying jobs and more affordable housing. For instance, the Charleston metro area is growing at three times the U.S. population average, with 28 new residents a day. At the same time, New York City is losing 131 people each day.
Our research found that Charleston also blew the competition out of the water regarding employment growth, growing at nearly doubling the national average rate, 2.9% compared to 1.6%. Kansas City and Columbus also posted positive gains slightly above the national average. Millennials are going where the jobs are, and the jobs are in 18-hour cities.
Major investments in 18-hour cities
We included Milwaukee as the next up-and-coming 18-hour city because of recent major investments in the city, among other reasons.
One of the largest commercial real estate projects in 2018 was the $524 MM Wisconsin Entertainment and Sports Center, home of the Milwaukee Bucks. Northwestern Mutual, one of Milwaukee’s most recognized companies, has invested $450 MM in their headquarters downtown. Meanwhile, several companies have made the journey north from Chicago (where it’s more expensive to conduct business) to Milwaukee, including Gold Standard Banking, Vonco Products, and Colbert Packaging. We believe these investments, the addition of a streetcar system, and a number of other positive trends, will spur economic growth in Milwaukee for years to come.
Columbus has also had a big development push in the past two years. Over 2.5MM square feet of office space has been added, more than the previous ten years combined! And approximately 7,800 multifamily units are currently under construction, with a majority of the projects concentrated in the downtown area.
The 24-hour markets always draw a big crowd, and subsequently the biggest institutional real estate investors. But with so much competition to invest into what we see as inherently slower-growing markets, the chance to invest into less hotly contested deals in fast-growing metros is very appealing. 18-hour cities are an opportunity for everyone else. These metros are simply more inefficient markets and, if you can consistently access quality deal flow, these inefficiencies can become boons for investors. CrowdStreet remains committed to the idea that investments in 18-hour cities are likely to outperform major metros in the coming years.
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Holly Huber is the Research Analyst within the Investments Team at CrowdStreet. She is responsible for analyzing markets across the country for all product types, creating thought leadership pieces and producing performance reports. Holly received a Bachelor of Science in Business Administration with a focus in Finance from the University of Colorado Boulder.