Investors and executives are increasingly choosing 24-hour cities as a place to do business. Until recently, however, there has been no definitive study on the subject. Drs. Kelly & Strumsky shared details of their compelling research into 24-hour cities and the impact on real estate. They examined everything from return on investment to rents and vacancy rates in order to gain an unprecedented understanding into the claim that 24-hour cities are superior locations.
On October 9, two researchers who have studied the characteristics of 24-hour cities met at the historic Duke Mansion in Charlotte with area leaders to share their findings over dinner. About 60 influential civic and business leaders attended the event, presented by the Carolinas Chapter of The Counselors of Real Estate.
Researchers, Dr. Hugh Kelly from New York University and, Dr. Deborah Strumsky from the University of North Carolina at Charlotte say Charlotte has made great strides toward becoming a 24-hour city that attracts diverse talent and fosters innovation.
So-called "24-hour cities" are increasingly popular among business leaders and investors who are attracted to the higher returns and quality of life these bustling metropolises can bring. Such cities are marked by their large populations, walk-to-work housing options, low crime and easy access to mass transit, airports and ports. While the topic of 24-hour cities has made headlines in national media, few economists have explored the phenomenon extensively. One real estate economist told the group he doesn't think Charlotte is far off from becoming a 24-hour city of its own.
"I think Charlotte can get there in the decade ahead," said Hugh Kelly, clinical professor of real estate with New York University's Schack Institute of Real Estate. A key, he cautioned, is for leaders to "figure out the right chemistry."
Kelly said his data shows that downtowns in 24-hour-cities not only generate higher returns on investment but they also create economic and social benefits that extend beyond the urban core and into surrounding communities and suburbs. For example, the odds that a poor child will move up the economic ladder in what he calls a 9-to-5 city (those where downtowns empty out on evenings and weekends) range from between 4 percent and 7 percent. In 24-hour cities, the odds can top 11 percent. In Charlotte, the odds are 4.3 percent. "The benefits of a 24-hour-city don't just flow to real estate investors and owners," Kelly said. 'The benefit and opportunity to move up the economic ladder is much more generous."
Deborah Strumsky, assistant professor of geology and earth sciences at UNCC, shared how cities take a long time to change, as much as three decades. As such, she said, Charlotte is an anomaly having successfully reinvented its economy repeatedly, each time taking less than 10 years to do so. Now, she said, the city finds itself again at a crossroads. "Charlotte is really on the cusp and it could take two different trajectories," she said.
Mr. Ned Curran, president and CEO of The Bissell Companies, one of the area's premier developers, said he was impressed by the presentations. "It was interesting to hear that these two experts thought Charlotte was at an inflection point where we could trend up or down," Curran said. "That should be an alert to all of us to keep our momentum going."
Charlotte City Manager Dr. Ron Carlee said he liked how researchers used New York City as a benchmark. Most often Charlotte is compared with similarly sized cities such as Atlanta, Phoenix and Dallas, Carlee said. "While great cities, they are not a high enough bar," he said. "If we really want to take Charlotte to the next level, we want to look at cities that are well beyond where we are to be truly aspirational."
Carolinas Chapter of the CRE Chair, Mr. Loren Kennedy said his group had hoped to create "a compelling, data-driven event that would prompt Charlotte's public and private sector leaders who attended to ask themselves what else they can do to keep Charlotte's guidance moving forward." He added: "I believe that Hugh and Deborah accomplished that."
In their research, NYU's Hugh Kelly and UNCC's Deborah Strumsky each studied 24-hour cities such as New York, Boston, Chicago and San Francisco, as well as a group of what is called 9-to-5 cities, including Atlanta, Dallas, Los Angeles, Minneapolis, Philadelphia, Phoenix and Seattle. They also compared data from another 25 top metropolitan statistical areas in the United States.
Among their findings:
A key indicator to a city's success is the number of people living near the downtown. Size and density is what makes a 24-hour city work, the researchers said. In New York City, 141,000 people live within one mile of the center of the business area. In San Francisco, that number is 103,000; in Boston, the number is 80,000; in Atlanta, the number is 17,000 and in Charlotte, the number is 4,700.
In creating density, it is important for a downtown to not only offer nearby housing, but also restaurants, retail and schools. Housing also canÕt be focused on only executives, it must be affordable for mid-career and mid-level workers who are committed to advancement. "Walk-to-work housing is essential," Kelly said. "But you need to make it attractive to families, not just yuppies."
Returns on investment are higher in 24-hour cities. Investors and property owners in 24-hour markets reported rents that were 55 percent higher in downtown office buildings than similarly sized 9-to-5 markets. Central business districts in 24-hour cities also tend to have higher occupancy rates than their associated suburbs. Since 1987, the vacancy rate in 24-hour central business districts has averaged 11.5 percent, compared to an average 17 percent vacancy rate in a 9-to-5 downtown. 24-hour cities embrace diversity.
Strumsky said inventors who move to the United States are seven times more productive in creating inventions than their U.S. counterparts and are more than two times as likely to start a new business. Strumsky also said Charlotte is home to many innovators, which is important as it is the inventors who are building the companies of tomorrow. Innovative cities create jobs and attract talented people and families. Kelly and Strumsky also shared what cities should not do.
Strumsky warned leaders not to be protectionist of anchor firms and said it is important for communities to not protect older firms at the potential expense of newer ones. Both researchers said it is important for a city to figure out what works best for its unique characteristics and not to simply copy the prevailing economic trend of the day.
Kelly shared how during a recent trip to Phoenix he saw billions of dollars worth of investment in new sporting facilities in downtown, yet no nearby housing, good restaurants or people at night. Kelly also said Charlotte ranks high on what he called "regional distinctiveness" and urged leaders to not simply try to imitate others. Be yourself," he said. "Preserve the character of your neighborhoods."
Can Charlotte truly become a new New York? Professor Hugh Kelly from New York University spoke with the Carolinas Chapter of the Counselors Real Estate exclusively to follow up on comments he made about the Queen City during their special October 9, 2013 dinner event. Kelly said Charlotte "has a running head start in its downtown development."
But, he said, he believes success will depend upon a commitment to bringing greater residential development density to the core. "That is the necessary catalyst (in my judgment) for developing a truly well-rounded community: one which will have convenient retailing, a mix of restaurants, and a real pedestrian feel characteristic of urban vitality," he said. "This builds upon the current foundation of places to work (offices), and the cultural/entertainment/recreation elements that Charlotte already enjoys."
He said planners should consider the thousands of people who work in government buildings as a potential market and that the amount of land parcels underdeveloped near downtown (e.g. acres of surface parking), could serve as near-in housing for restaurant workers, retail workers and other "service class" employees necessary for a 24-hour ambiance.
"I think Charlotte can get there," he said. "While I'm an optimist about that, there's civic vision, will, and resources that are the conditions for bringing about 24-hour cities. Cities with far less favorable starting points (New York, Boston, Washington D.C. and San Francisco, for example) have pulled it off. With work, Charlotte can as well."
I thought it was a great event, really interesting to think about, both as a legislator and commercial real estate lawyer.
Rob Bryant, N.C. House of Representatives & attorney, Womble Carlyle Sandridge & Rice
It was Great!
Ron Carlee, Charlotte City Manager
Ben and I were impressed with the evening's topics and discussion. I enjoy your events and look forward to hearing about the next one
William S. Transou, Principal, MedSouth Healthcare Properties, LLC
Both speakers were talented and left us with some insight and useful nuggets. The program would have even better if we learned what Charlotte Center City Partners and others have done, are doing, and plan to do to attract the Creative Class
Ken Szymanski, Executive Director, Greater Charlotte Apartment Association
Absolutely a 10 - topic, speakers, venue, and stature of attendees.
Richard Marchitelli, MAI, CRE, FRICS, Executive Managing Director, U.S. Practice Leader, Dispute Analysis & Litigation Support, Valuation & Advisory, Cushman & Wakefield, Inc.
The CRE presentation was one of my favorite events of 2013.
Gene Bodycott, Executive Vice President, New Forum
We enjoyed the presentations very much. I thought the entire event was well done. We knew the event would be well done. It was a good investment.
Kelli Kline Mayhew, MAI, MRICS, HK Meridian, Inc.
I believe that this event fit perfectly into the Counselors of Real Estate ongoing quest to be a part of forward thinking about commercial real estate's impact into how we all live, work, learn and play.
Loren Kennedy, Principal, Kennedy Advisors, LLC.
Contact us for inquiries on future CRE events