Finding Certainty in Uncertain Times: New ULI Report Explores Factors That Will Reshape Urban Growth in Years Ahead

For more information, contact Trisha Riggs at 202/624-7086 (o) or 202-679-4557 (m); priggs@uli.org

WASHINGTON (October 12, 2010) — In the midst of economic uncertainty, there are still some elements of certainty – such as demographic shifts, financial industry restructuring, global competitiveness, and sustainable building – that will guide real estate investment and reshape urban growth trends in the years ahead, according to a new report from the Urban Land Institute (ULI).

Finding Certainty in Uncertain Times, a collection of commentaries from ULI’s five senior resident fellows Stephen Blank, Edward McMahon, John McIlwain, Thomas Murphy and Michael Horst, examines trends in population growth, consumer housing preferences, employment, real estate finance, environmental conservation, energy efficiency, venture capital investment and public leadership. These factors, according to Finding Certainty, are converging to shape a new era of urban economics within which cities and urban regions will have to compete in order to be successful in the 21st century. “These trends will continue regardless of location, of which political party is in power, and of how quickly we recover from the recession,” says the report. “Taken collectively, they will create the ‘new normal.’”

In the essay “An Era of Less,” Blank, ULI’s senior resident fellow for real estate finance, discusses the shrunken financial industry, now defined by lower real estate returns, limited new development prospects, reduced credit availability and curbed profits. Conditions in the commercial sector are expected to improve moderately over the next year, positioning real estate as offering attractive, but not double-digit investment potential, he notes. “This reconstituted marketplace should reposition real estate as an attractive yield-producing asset class for those investors who recalibrate investment expectations on a long-term horizon,” Blank says.

Expectations regarding real estate performance will also be influenced by changing consumer preferences regarding living and working environments, he predicts. “Coming years will focus on readapting real estate to people’s revised (work, savings and retirement) goals, priorities and expectations. We’ll be working longer, saving more, and looking for greater efficiencies in how we live and work.”

In “Fragmentation and Reform,” McIlwain, ULI’s senior resident fellow for housing, says the U.S. residential market will be forever transformed by steady, if slower, population growth; population diversity (almost half the growth will be among immigrants and ethnic minorities); increased market segmentation; slower housing appreciation; urbanization of the suburbs; highly fragmented resort and second-home markets; and major reform of housing finance systems. When the federal government starts to implement reforms (McIlwain predicts 2012 at the earliest) Fannie Mae and Freddie Mac will “look nothing like they have in the past,” he says.

“As the housing markets recover, demand will increase significantly for smaller, greener homes, more rental than in the past, and more compact, walkable urban centers in the suburbs as well as in many, but not all, central cities. The biggest challenge (in center cities) will be finding suitable, affordable locations,” McIlwain says. “There will be metro areas that will attract the brightest and best, and will continue to grow and provide opportunities for development. Within these metro areas, some local markets will thrive…these are the compact, walkable communities, which are finding increasing demand as people look to new ways to define livability.”

In “Green is Here to Stay,” McMahon, ULI’s senior resident fellow for sustainable development, maintains that the push for more environmentally conscious development practices will be driven at the state and local levels of government, and by the private sector, rather than at the federal level. He cites a steady increase in the number of buildings entering into the U.S. EPA’s Energy Star program, and a surge in the number of Leadership in Energy and Environmental Design (LEED)-certified professionals as evidence that interest in green building has remained strong, despite the recession.

Other signs: a growing number of cities that are following the lead of New York, Washington, San Francisco and Boston in enacting legislation to improve building energy efficiency and reduce carbon emissions. Energy saving programs such as LEED and Energy Star are “not going away,” and, in fact, these and other energy conservation measurement systems can be expected to evolve and become more stringent, McMahon predicts.

“It is clear that investors increasingly recognize that sustainability, particularly energy efficiency measures, makes financial sense,” McMahon says. “Market forces, regulatory incentives and mandates will continue to pressure real estate owners and property managers to enhance the sustainability of their portfolios.” Another certainty: increasing recognition that “green” locations for buildings hold the key to long-term community sustainability. “The location of a building is as important to energy efficiency as how a building is designed and built.”

Murphy, a former mayor of Pittsburgh who is now ULI’s senior resident fellow for urban development, discusses the importance of economic diversification to attract venture capital in “Beyond Safe and Clean.” Because U.S. cities are now competing globally for jobs, land use and infrastructure planning, ease and quality of development, availability of affordable housing, and provision of adequate open space are more critical than ever, Murphy says.

“Today, the ability to create and reinvent new economic engines, new synergies and new offshoots is required (to succeed as a global competitor). The forces of global trade, new requirements for energy and infrastructure, climate change impacts, technological innovation and demographics are redefining the elements for cities to compete and succeed.”

Effectively positioning a city as progressive and open to outside investment requires public officials to think and act as entrepreneurs, capitalizing on the potential of anchor institutions such as higher education or medical facilities, alternative energy-related industries, and biotechnology industries, Murphy maintains. The difference between the winners and losers is, he says, a shared goal by both the public and private sector to create a climate of innovation and progress. “The shared vision and leadership of anchor industries, public leaders and private entrepreneurs can forge new economies,” Murphy says. As the U.S. economy continues to shift toward “brains, technology and service,” the urban areas that embrace and encourage public-private collaboration will be the most likely to draw the most venture capital, he says.

In “Great Leadership Equals Great Cities,” Horst, ULI’s senior resident fellow for land use leadership, points to strong civic leadership as a common factor shared by U.S. cities that are consistently ranked by ULI members as the most favored for investment and development prospects.

Horst also credits regional growth visioning involving the public and private sector as key to engaging civic stakeholders who will champion urban investment and overcome “not-in-my-backyard” (NIMBY) paralysis. He cites regional cooperation initiatives in cities as diverse as Washington, D.C.; Los Angeles; New York City; San Diego; Seattle; San Francisco; Honolulu; Raleigh; Austin; Charlotte; San Jose; Boston; Portland (Ore.); Sacramento; and Orlando as illustrative of the public and private sector working together to craft a long-term growth strategy that fosters a positive investment context.

“Successful cities have politicians and citizens who are thinking ahead, mapping their future in terms of land use patterns that will create environments to attract employers and provide residents with high-quality amenities,” he says. “Strong political leadership and empowered citizen leaders are key factors of enhancing certainty in an uncertain environment.”

TO REPORTERS AND EDITORS: To arrange an interview with any of ULI’s senior resident fellows, contact Trish Riggs, 202-624-7086 (office), 202-679-4557 (mobile); priggs@uli.org.

About the Urban Land Institute
The Urban Land Institute (uli.org) is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.