Reimagining Cities-Disrupting the Urban Doom Loop
protection are spread over much more densely developed real estate. For example, one mile of sewer line costs roughly the same if it is being used at one unit to the acre or 40 units to the acre; but the per unit or per square footage cost is 1/40th in the latter development. All infrastructure gets more expensive based upon the geographic length of service required; higher density is always much cheaper than lower density at the per square foot or per acre basis. As shown previously tax revenues tend to be higher for higher density WalkUPs versus lower density housing districts, generating more revenue per square foot. Higher tax revenue per square foot or acre, combined with much lower costs per square foot or acre, results in substantially higher net fiscal impact for WalkUPs. This analysis underscores why it is critical for cities to take an active role in understanding the reliance of the city’s fiscal health on WalkUPs. It may further propel cities to consider taking an active role in ‘incentivizing’ market composition shifts to better maximize long-term real estate values, economic growth, RevPSF and net fiscal impacts.
Conclusions on Real Estate Performance Whether we measure real estate performance at the city or WalkUP level, and measure it by rent, absolute valuation or valuation PPSF growth, we consistently see an important trend—there can be too much or too little of any product type—the Goldilocks thesis. Diversity in product mix matters and is valuable. So, while there has been a focus in the CRE industry around the fact that some portion of office stock is competitively obsolete, the data show that having too little office in WalkUPs is problematic. Cities need to have a good mix of the right type of each product, which is why Cushman & Wakefield has consistently seen stronger leasing demand and lower vacancy rates for the highest quality office in CBDs. Cushman & Wakefield has also recorded structural demand for office across the quality and price spectrum, indicating a variety of options is necessary to meet the wide array of needs that firms have. WalkUPs can contain too much or too little Work or Live product. Interestingly, however, the data show that, in most cases, we are under-indexed in Play, and that adding more product that attracts visitors ( as well as employees and residents) can be a winning strategy. We explore the importance of visitors in detail in the next section. As placemakers, policymakers and CRE professionals examine performance in cities, it is critical to consider the benefits that ‘portfolio theory’ can bring to the built environment, not just the way investors structure their own portfolios. In our final section, we explore what portfolio optimization suggests, and offer some recommendations for decision makers. But first, we must reflect on other issues facing cities that are not captured in real estate data specifically.
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