24-Hour Cities Tops For Real Estate Investors

Real Estate Investors Get Up to 76 Percent Higher Returns in 24-Hour Cities vs. 9-to-5 Cities

NEW YORK, February 27, 2012 –Looking for a smart commercial real estate investment or a cutting-edge location for a new office? Cities that never sleep are the way to go, according to research by NYU Schack Institute of Real Estate Clinical Associate Professor Hugh F. Kelly.  The report, titled “24-Hour Cities,” explores the long-held belief that 24-hour markets outperform 9-to-5 cities in terms of return on investment, rent, and vacancy rates. 

Investors who chose offices in metro areas centered on 24-hour cities would have enjoyed 76 percent higher total returns over nearly a quarter century from 1987 compared with 9-to-5 metros. If those investors were even more selective and strictly limited themselves to downtown office properties, the 24-hour markets provided more than double the total returns – a 111 percent greater return, compared with the 9-to-5 Central Business Districts (CBDs).

“The idea that 24-hour cities are smart investments has been discussed and debated for decades, but there has never been a definitive study done on the subject,” said Kelly,. “The results are clear: return on investment, rents, and vacancy rates have been uniformly superior for 24-hour metro areas when compared to 9-to-5 markets.”

The research paper explores the claim that 24-hour cities are superior locations to their 9-to-5 counterparts in terms of real estate because of their proximity to sought after residential neighborhoods and school districts, intellectual capital, efficient transportation access, an abundance of retail, low crime, and attractive amenities in or near CBDs. 

For comparison, the study focuses on empirical data for a set of 24-hour cities and a complementing series of 9-to-5 cities. The 24-hour cities include New York, Boston, Chicago, San Francisco, and Washington, DC. The 9-to-5 cities selected were Atlanta, Dallas, Los Angeles, Minneapolis, Philadelphia, Phoenix, and Seattle. For an additional comparison, a third set of data was compiled for the remainder of the top 25 metropolitan statistical areas (MSAs) in the United States.

The 24-hour markets reported rents that were 55 percent higher in downtown office buildings than similarly sized 9-to-5 markets. Rents surged in the late 1990s, coinciding with the tech boom, a robust economy, and rapid job expansion. Overall, rents in the 24-hour downtowns commanded a 28.8 percent premium over their adjacent suburbs. 

Manhattan was one of the strongest markets, followed by Las Vegas, San Francisco, and Washington, DC. CBDs in 24-hour cities also tended to have higher occupancy rates than their associated suburbs. Since 1987, the vacancy rate in 24-hour CBDs has averaged 11.5 percent while the 9-to-5 downtowns reported average vacancies of 17 percent.

Buoyed by rental premiums in 24-hour metro areas, investment properties on all levels, including office assets in metro areas and CBDs, also outperformed those in 9-to-5 areas. 

While no market is immune to market cycles, the data set showed that for 24-hour markets, cycles have been shallower on the downside and steeper on the upside for 24-hour markets when compared to 9-to-5 markets, which tended to have longer downturns.

“Higher rents and lower vacancy rates, combined with the conveniences of a 24-hour market means higher returns and more investment in that location,” said Kelly. “I expect that we will continue to see sought-after markets like New York, Chicago, and Boston flourish as people want to be where the action is.”

About the NYU Schack Institute of Real Estate
The NYU Schack Institute of Real Estate (scps.nyu.edu/schack) was founded in 1967, at the initiative of prominent real estate leaders who encouraged NYU to establish an academic center that provided an educational foundation for professionals within their industry. Today, NYU Schack is home to graduate degree and related graduate certificate programs—notably the M.S. in Real Estate, the M.S. in Construction Management, and the M.S. in Real Estate Development—which enroll almost 800 full- and part-time students from more than 30 countries and have nearly 2,500 alumni degree-holders around the globe.  In addition, each year approximately 4,200 working professionals enroll in the Institute's professional certificate programs, noncredit courses, and licensure-related offerings in such areas as real estate finance, sales and brokerage, sustainable design, facilities management, and architecture and civil engineering.  The Institute also houses the NYU REIT Center and the Center for the Sustainable Built Environment and hosts key industry events, including annual conferences on Real Estate Capital Markets and REITs. NYU Schack is one of several comprehensive academic divisions within the School of Continuing and Professional Studies (NYU-SCPS), the NYU home for study and applied research related to key knowledge-based industries where the New York region leads globally.

About the NYU School of Professional Studies

Established in 1934, the NYU School of Professional Studies (sps.nyu.edu) is one of NYU's several degree-granting schools and colleges, each with a unique academic profile. The reputation of the School of Professional Studies arises from its place as the NYU home for study and applied research related to key knowledge-based industries where the New York region leads globally. This is manifest in the School's diverse graduate, undergraduate, and Professional Pathways programs in fields such as Accounting, Finance, and Law; Applied Health; Arts, Design, and Film; Creative Cities and Economic Development; English-Language Learning; Entrepreneurship; Fundraising and Grantmaking; Global Affairs; Hospitality and Tourism Management; Human Resource Management and Development; Languages and Humanities; Management and Systems; Marketing; Project Management; Public Relations and Corporate Communication; Publishing; Real Estate, Real Estate Development, and Construction Management; Sports Management, Media, and Business; Translation; and Writing.

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