A downtown address; In many major cities around the country, people are moving back downtown. Empty-nesters, immigrants and young professionals find loft and urban condo living very inviting. Three markets tell the story: Detroit, Miami and Washington, D.C.

Author:Bell, John
Position:Market research

Most of the nation's urban downtowns have benefited from the national housing boom of recent years. Increasing numbers of people have taken rising residential prices in stride and opted for an urban lifestyle. [??] This clearly has been good for downtowns. But it also adds fuel to the current debate over whether certain hot housing markets are headed for a correction. Condominiums, in particular, are being watched carefully for signs of softening demand and falling prices. And condos tend to be concentrated in cities, among other spots. For the present, though, downtown housing is still strong and thriving, according to urban experts. [??] David Feehan, president of the Washington, D.C.-based International Downtown Association, says, "Although there are some signs of softening in the overall residential market, residential is moving forward very well in nearly every urban downtown market." [??] Fueling demand for urban residences are empty-nester and baby-boomer demographic groups looking for mobility, comfort and convenience. "The downtown lifestyle gives them those things. They don't have to worry about re-roofing, shoveling snow or mowing lawns," says Feehan. [??] "Downtowns are also the places to look because of slides in consumer confidence and worries about rising gas prices," he adds.

Residential space is major demand

Michael Beyard, senior resident fellow in the Washington, D.C.-based Urban Land Institute (ULI), says the major demand for urban downtown space is residential, especially in the 18-hour cities. "The market demand can be expected to continue if interest rates stay low," he comments.

Christopher Leinberger, visiting fellow at the Washington, D.C.-based Brookings Institution, has a very positive view on urban downtown residential. "Fundamental demographic shifts have produced a housing boom never seen before. The next decade of downtown development will be heavily residential, both rental and condo," he says.

However, when it comes to urban downtown office, it's a different story. Downtown office reflects the weakness of the office market in general with sluggish demand and little new construction, according to Leinberger. "The office market comes back last in recovery," he says. Leinberger, a land-use strategist, is also partner in Arcadia Land Co., Wayne, Pennsylvania.

First in the recovery cycle is urban entertainment, which stimulates the residential market. Once the for-sale condo market takes off with bosses living downtown, demand is stimulated for office space, Leinberger concludes.

Beyard says, "Office demand is split among various locations, downtown being only one. There's little new office construction in urban downtowns, and that won't change very much. Most of the office growth is in the suburbs."

Feehan points out that urban downtown office is a market-by-market situation that varies widely. Some markets (such as Washington, D.C., Manhattan and Northern New Jersey) are strong, while others (including Pittsburgh, Cleveland and Buffalo, New York) are soft.

Feehan says the recession coincided with the pick-up in interest in moving downtown. "The move started in the mid- to late 1990s, when the economy was going strong, and [it] just continued," he says.

"A lot of attractive new product came online in the areas of retail and residential, so many downtowns fared well. The ones that failed didn't have the right business model. The customer base was there," he explains.

Beyard and Leinberger agree that urban downtowns held up better during the recession than their suburban counterparts.

Beyard says urban downtowns were the most accessible, and provided the most amenities and central locations for businesses that want to be close to their clients--such as accounting and legal firms. "The farther out we go, the less well locations and amenities held up for businesses serving urban downtown clients," he notes.

Leinberger says, "More than one-third of the total residential demand nationwide is for walkable urbanity, and that's being satisfied best downtown."

The outlook appears positive for urban downtown growth from now into 2007.

Beyard says, "Trends point to increased residential growth and continued expansion of culture, entertainment and dining. We're also seeing more recognition of branded locations--those particularly noted for their culture and entertainment aspects, such as Manhattan, Los Angeles, Los Vegas and, on a smaller scale, Santa Barbara, California; Charleston, South Carolina; and Annapolis, Maryland."

Feehan says, "The outlook is bright because downtown leaders expect strong growth and demand in restaurants, entertainment, retail and residential. Some cities behind the curve, such as Des Moines [Iowa] and Colorado Springs [Colorado], are beginning to catch up. Office overall is more of a static market, with very modest increases expected."

Leinberger says urban downtowns will hold up better than suburban downtowns. He foresees a strong retail market, but says office will continue to be soft nationally.

Density not a problem

One of the major factors involved in urban downtown development is density, a controversial subject to many who associate it with traffic congestion and a host of other urban problems.

However, a 2005 study entitled Higher-Density Development--Myth and Fact, co-produced by the National Multi Housing Council (NMHC), Washington, D.C.; the Sierra Club, San Francisco; the American Institute of Architects (AIA), Washington, D.C.; and ULI, points out that density is...

To continue reading