CRE N Illinois

ULI reports suggest that denser cities are better performing, more desirable

ULI reports suggest that denser cities are better performing, more desirable,ph1

We’ve known for a while that when it comes to cities, denser is better. But new research from the Urban Land Institute (ULI) and the Coalition for Urban Transitions suggests a broader set of beneficiaries, concluding that compact, well-designed cities are better for citizens, the environment and investors alike.

The report, Supporting Smart Urban Development: Successful Investing in Density defines “good density” as dense development that is thoughtfully designed to promote a high quality of life. Metro areas designed to these standards may be more resilient and prosperous in the long term, as well as more likely to provide higher risk-adjusted real estate investment returns.

“Unprecedented levels of urbanization coupled with revolutions in transport, energy and data technology offer new opportunities to reshape cities,” the report’s authors wrote. “Cities of the future need to be planned strategically to support environmental and social well-being as well as economic productivity.”

There are six measurable characteristics that a metro with “good density” will exhibit. Clustering of structures considers land use patterns within cities and regions; economic and employment infrastructure calls for the availability of investment, jobs and talent; a good built infrastructure will have both physical density and a mixture of uses; good governance and finally, green and blue infrastructure—biodiverse water retention schemes for the former and small footprint, high-efficiency systems within existing infrastructure for the latter.

“This evidence shows, if done right, long-term real estate investors, people and the environment don’t have to be in conflict over efforts to put cities onto a low-carbon and more equal path,” said Nick Godfrey, director of the Coalition for Urban Transitions. “On the contrary, national and local governments and well-informed real estate investors can find common cause in promoting improved public transport, cycling and walking, protecting public parks and reducing energy waste in cities.”

The research demonstrates the impact of several characteristics of livable and low-carbon cities—including compact urban form, walkability, and open space—on investment returns. The report suggests that this kind of development can not only help solve pressing employment, economic, inequality and climate issues, but can also boost a city’s ability to attract international capital for real estate investment.

The report was supported by a consortium of firms including Bouwinvest Real Estate Investors, Capco, CBRE Global Investors, Grosvenor, Chicago-based LaSalle Investment Management, M&G Real Estate, PGGM, Redevco and Union Investment. McKinsey and Company also contributed to the report as a project advisor. These companies have released a statement committing to champion further understanding of the opportunities and benefits of well-managed and well-serviced densification.

Mary K. Ludgin, the district council chair of ULI Chicago as well as managing director—head of global research at Heitman LLC, understands how Chicago has been applying these principles.

“Well-planned density offers multiple benefits, heightening economic prosperity, environmental sustainability and enhancing livability in both city neighborhoods and suburbs,” Ludgin said. “Chicago offers many examples of the power of putting density in the right place. The infusion of new residents into old neighborhoods results in new vitality, new tax revenues, and new support of local business.”

A more thoughtful approach to how cities operate couldn’t come at a more opportune time, as the world’s population shifts to urban areas. According to the World Health Organization, the urban population in 2014 accounted for 54 percent of the total global population, up from 34 percent in 1960. The shift to cities should continue, with the urban population expected to grow by approximately 1.84 percent per year between 2015 and 2020.

A separate study released by ULI, The New Geography of Urban Neighborhoods, shows that the population of urban neighborhoods in many metropolitan areas is growing as quickly or nearly as quickly as that of suburban neighborhoods. This reflects the ongoing consumer demand—particularly among younger households— for highly walkable living environments that are convenient to jobs, transit and urban amenities.

Prepared for ULI’s Terwilliger Center for Housing by RCLCO Real Estate Advisors, this report finds between 2010 and 2015, the growth rate of urban neighborhoods was 3.4 percent, compared to 3.7 percent for suburban neighborhoods. This is in sharp contrast to 2000 to 2015, when the growth rate for urban neighborhoods was one percent, compared to 13 percent for the suburbs.

The report’s analysis of who lives where suggests potential growth trajectories for the 50 MSAs evaluated. Seattle has the largest percentage of residents (13 percent) living in economic centers, followed closely by Washington D.C. and San Francisco (10 percent each). Jacksonville, Florida has the most residents (12 percent) in emerging economic centers, followed by Birmingham, Alabama (11 percent). New York City has the largest number (26 percent) in mixed-use districts, followed by Chicago (23 percent).

The two reports suggest a continuing evolution of our cities. More American Millennials find the city life desirable for their live-work-play life balance, while at the same time, cities that thoughtfully manage their density can improve the environment, citizens’ lives and investors’ bottom lines.