Real Estate Forum - Feb/March 2016

2016 Annual Review & Forecast | Population Magnets

CRE’s Next Big Thing:

Innovation Centers

Innovation is at the heart of any global market. Creating improved products, processes and technology is essential for any international player, and we have seen this innovation time and again in the primary American real estate markets. But as these markets become saturated and overheated, new markets are emerging—some on the outer rings of primary markets and others not as close in.

One factor that has caused many of these markets to emerge is job growth, but not just any job growth. Amy Liu, VP and director of the Metropolitan Policy Program, recently wrote in her blog for the Brookings Institute that relentlessly chasing jobs can be costly; instead, it’s better for taxpayer dollars to be spent on strategic investments in public goods like research, training and infrastructure that support innovative firms creating good-paying jobs. “Only by boosting household incomes can regions stoke demand for local-serving industries like restaurants and retail, and create new jobs associated with them,” Liu wrote.

In addition, each region has to play to its
own strengths and not try to imitate hot
tech markets like San Francisco and Silicon
Valley if it doesn’t share their strengths,
Scott Andes, associate fellow with
Centennials Scholar Initiative, wrote in
another Brookings Institute report. “Cities
have unique technology competencies and
pathways to venture capital.” Economic
strategies to attract outside capital and bol-
ster local funding should reflect those attri-
butes and not simply default to what seems
to have worked in the Bay Area.”
With these unique strengths in mind,
Real Estate Forum set out to explore
what makes these emerging markets great,
why people are attracted to them and how
they’re impacting commercial real estate.

SEATTLE

Seattle is a very urban, downtown and liv-
able community similar to San Francisco,
only with a better cost of living, Berkeley
Davis, director at RETS Associates—a
national commercial real estate recruiting
firm, in Seattle—tells Forum. “Because of
the spur of development over the past sev-
eral years, a lot of trendy submarkets have
evolved that are walkable and transit ori-
ented. For the growing number of working
Millennials, this is a very attractive lifestyle.”
Davis says a major component that
makes Seattle attractive to employees in
CRE is the culture. “Museums, shows, music
and arts venues are all very affordable and
accessible. This is a desirable element that
stretches across all generations.”
Seattle is also a tech-focused city—sec-
ond only to Silicon Valley—which greatly
influences the CRE community and results
in a relatively high number of companies
that promote flexible hours and working
from remote locations. “One of our clients
in Seattle has approximately 50% of its
workforce in the office on a daily basis—the
rest work from home,” says Davis. This is
extremely attractive to Millennials and Gen-
Xers with small children or those who do
prefer to live further out in the suburbs.”
Seattle has become so popular that avail-
able homes are growing scarce. According
to RealtyTrac, due to Seattle’s growing
economy, high in-migration and limited
housing supply, “it’s no surprise that our
market has a low number of vacant homes
relative to the national average,” writes
Matthew Gardner, chief economist at
Windermere Real Estate in Seattle.

One of the fastest-growing areas of Seattle has been South Lake Union. It began with the Fred Hutchinson Cancer Research Center’s relocation to the market in the late 1980s and continued through Amazon.com’s relocation of its urban campus in 2007, which spurred many like-minded businesses to move to the area, Lori Mason Curran, real estate investment strategy director for Vulcan Inc., tells Forum. Between 2010 and 2015, Vulcan delivered 2. 7 million square feet of office space to the online retailer in South Lake Union, and soon the neighborhood became a hub for innovation and collaboration across companies and sectors.

“Soon, start-ups, life-science and tech companies were relocating to South Lake Union because of its unique atmosphere,” says Mason Curran. “In 2014, South Lake Union was recognized as one of seven innovation districts in the US by the Brookings Institute,” which defines the term as geographic areas where leading-edge anchor institutions and companies cluster and connect with start-ups, business incubators and accelerators. “They are also physically compact, transit-accessible and technically wired, and offer housing, office and retail.”