Academic journal article Journal of Real Estate Portfolio Management

Defining 24-Hour and 18-Hour Cities, Assessing Their Vibrancy, and Evaluating Their Property Performance

Academic journal article Journal of Real Estate Portfolio Management

Defining 24-Hour and 18-Hour Cities, Assessing Their Vibrancy, and Evaluating Their Property Performance

Article excerpt

We develop rigorous definitions of 24-hour and 18hour cities in the United States and distinguish them from 9-to-5 cities. We begin with six indicators, five of which Kelly (2011) previously studied for 14 large U.S. cities in 2007. We expand the analysis to a larger group of 42 cities examined in Malizia's (2015) research on vibrant centers. Our objectives are to advance the discussion of cities beyond the level of descriptive and largely subjective considerations to measurable attributes amenable to quantitative analysis, and to relate the results of that analysis to performance measures useful for real estate investors concerned with investment property and public policymakers seeking a more viable tax base.

In the next section, we summarize the Urban Land Institute's (ULI's) discussion of 18-hour cities and then apply Kelly's (2011) criteria. We compare the resulting categorization of 24-hour city or 18-hour city to vibrancy scores for the downtowns of these 42 places. We establish groupings with these criteria and with K-means cluster analysis. Finally, we use property performance metrics to determine whether six 24-hour cities (Tier I), nine 18-hour cities (Tier II), and 27 9-to-5 cities (Tier III) perform distinctively.

Analysis of Criteria

In preparing ULI's 2016 Emerging Trends in Real Estate report, 1,465 real estate professionals were surveyed or interviewed. The consensus of opinion was that first-tier, gateway 24-hour cities were becoming less attractive and that 18-hour cities were emerging as the top markets to watch. ULI identified five criteria, all different than ours, to describe 18-hour cities: second-tier city, lower cost of living/lower cost of doing business than first-tier cities, job growth, tech employment, and successful ongoing downtown revitalization. Although specific 18-hour cities were not identified, the following seven second-tier cities were listed as the top ''markets to watch'' in both the 2015 and 2016 Emerging Trends reports with minor differences in ordering: Austin, Charlotte, Denver, Nashville, Portland, Raleigh-Durham, and Seattle.

All of these second-tier cities have experienced strong recent job growth. The cost of living is lower than in first-tier cities but they are not low-cost cities; their housing and business costs are near the national averages. Some are tech-oriented (Austin, Denver, Raleigh-Durham, Seattle); others are not (Charlotte, Nashville, Portland). Seattle, Denver, and Portland have relatively vibrant downtowns; Austin is above average. Nashville, Charlotte, and Raleigh-Durham have weak downtowns, handicapped by auto dependency, low density, and less walkability.

In contrast to the ULI criteria, Kelly, Adair, McGreal, and Roulac (2013) show that six criteria have statistically significant correlations with real estate performance measures including cumulative total returns on investment and price levels for commercial office buildings. Five of their criteria are included in this research: (1) full-service drug stores open 24 hours a day within 10 miles of the city center; (2) city population density; (3) regional distinctiveness score on the Markusen-Schrock (2006) scale; (4) FBI ''index crimes'' per 100,000 of city population; and (5) percentage of workers using non-auto transportation for their journey to work. The omitted criterion requires data on hourly traffic counts that could not be collected for the 42 cities given time and resource constraints.

The first criterion directly addresses activity after normal business hours. The next four factors enhance evening and nighttime activity. A sixth attribute was introduced to replace traffic counts: the number of people living in or near downtown who also work in this area. This live-work attribute is regarded as an indicator of diversity, contributing to the support of local activities ranging from shopping, to restaurants, to recreational/cultural facility utilization, and even to the excitement of local nightlife as an attraction to a wider population. …

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