Commercial real estate in the U.S. is at a turning point, with primary markets like New York, San Francisco, and Los Angeles showing signs of overheating—that’s according to online marketplace for real-estate investments RealtyMogul.com. This firm claims that it is normal in this phase of a commercial real-estate cycle, secondary and tertiary markets across the country are where the new action is. So Barron’s Penta asked its real-estate team to identify the top commercial real estate markets that high-net-worth investors should be looking at.
Atlanta. This city’s support for research and development companies, along with a robust group of tech firms, resulting in a job growth rate last year that was twice the national average of 1.6%, according to the Bureau of Labor Statistics. The total of new jobs in Atlanta during the year ending in April: 87,000. One big reason for the uptick is Coda at Technology Square, which is over 700,000 square foot development that will support data centers and research labs. Investors should build high-end rentals, which is in high demand as the new offices fill up with well-paid employees, says Jilliene Helman, CEO of RealtyMogul.com. She also expresses that retail spaces are attractive investments, as discretionary income spikes with the new and high-salary jobs. This year, Atlanta is supposed to have one the largest increases in the number of households compared to other major cities out in the country. But timing is important: Atlanta was one of the hardest hit real-estate markets when the recession came last go around.
Dallas. Texas is a big employer draw because there is no state income tax, and of all its cities, Dallas is the most attractive for investors. Dallas is planning to add more than 20,000 multi-dwelling units over the next two years, Helman says, simultaneously with Toyota’s and Liberty Mutual’s decisions to relocate to the area. “you’re not going to want to build another one of those, but invest in Class C and Class B” she states, “Multifamily-housing units are being developed in Class A”. This more moderate housing is needed to support the growing number of utilities, employees in transportation and trade, she says. Expect 2017 and 2018 to be peak years for both high supply and demand.
Nashville. The cost of doing business in Music City, U.S.A. is 20% less than in the rest of the country, exclaims Helman, and that’s bringing new firms to the area. More than 200 companies have relocated to or expanded in the hip city areas, accounting for around 25,000 jobs and 15 million square feet of commercial real estate coming online in the 2 years leading up to this past May. Nashville also has one of the nation’s best recession hedges, as the capital of the U.S. health-care management industry, Helman says. She states, “Whether the economy is good or bad, people still need health care.” There is plenty of opportunity building multidwelling-housing units, as the city’s population growth outpaces the current supply of properties.
Raleigh. Highly-paid, young folks are moving into the city in large numbers, with the 20-year-old to 34-year-old crowd accounting for over 23% of the city’s total population. Duke University and The University of North Carolina provide a continuous flow, educated workers to North Carolina’s relatively high-paying tech and jobs in pharmaceutical, says Helman. They aren’t “going to have the capital to buy, but will rent one,” she says. Investors should target rental apartment buildings and multi-dwelling units. Homeownership is not affordable with the ratio of median home price to median household income higher than the national average.
Salt Lake City. The city posted last year some of the fastest job growth in the nation, at 3.4%. Payrolls are also at all-time highs. Service-oriented retail businesses—like “karate centers, nail salons, and restaurants”—effectively feeding the residents’ entertainment needs, Helman states. Note, too, no other city in the national index has as higher financial-services growth rate, in which employment increased 15% over the last few years, three times the nations average.