Are consumers tired of suburbia? Does suburbia still have importance (Think education, space,) Is suburbia still relatable to the American dream?
Once forgotten, downtown living is now becoming important again. This surge is coming from a variety of sources such as empty nesters, young professionals, and married couples. Even though they have their own varying reasons, they are looking for the same thing. These would be trend setters are seeking smaller livings spaces, walkability, less home maintenance, cultural havens, and convenience.
Empty nesters are no longer interested in maintaining large 3,500 square feet homes. They are opting for smaller 1,500 square foot condos. By doing so, they reduced their utility bills, reduced the need for excess furniture, and no longer need to maintain a lawn or a pool. Instead these amenities are included with condominiums and apartment communities. Additionally, these condos can act as a secure “home base” in a way that allows them to travel without worrying about a house. Young professionals yearn for downtown living due to the proximity of their workplace and entertainment. Downtown’s generally offer a variety of dining and entertainment options that are usually not found in the suburb. Young professionals are also able to live in close proximity to like-minded people.
The modern family has also shifted in favor of downtown living, at least until they have children which is happening later in life. As young professionals marry, they still desire the downtown lifestyle and its many perks. These families, as a result, are having children later in life than their parents. For example, by my mother’s 31st birthday, she was having her second child and living in her third home. Contrast that with myself - 30 years old with no children and living in a downtown environment. My friends who are having children are doing so in their early thirties and then choosing the suburban lifestyle of larger homes, better schools and a sense of security.
This large shift in consumer change has had a significant impact on real estate as more companies focus their attention on creating a live-work-play environment that encompasses these new desires. Cities are now challenged to make their communities more livable and more attractive. Companies are now blending commercial, retail and residential in an effort to bring back art, entertainment, and culture to downtowns. This is not to say suburbia is dead or that it’s on life support. It’s just evident that the American dream may no longer require suburbia.
It will be interesting to see how long this change will last. I feel downtown areas will become crowded once again and lose their appeal. Right now the idea of downtown living is new, fresh, and different. The question is how long until it becomes stale because, as we know, consumers are fickle creatures.
Property Valuation Changes
One impact of the economic downturn is how appraisers evaluate property value and what influence rental concessions may have. Tenants have had the upper hand when it comes to lease negotiations and eager landlords desperate for occupancy have given up months of free rent as a result. It’s not uncommon for a landlord to forego one year of rent simply to sign a tenant to a long term deal but how does this impact how an appraiser views a property?
Appraisers are now faced with using market vacancy or economic vacancy when valuing a property. As a result of the various concessions landlords use, this question has become increasingly difficult to answer. The economic vacancy method may be the truest since it takes into consideration all factors that impact a property’s value when using the income approach the value. Whereas the market vacancy method does not consider any concessions a landlord may have given to prospective tenants.
As an end result appraisers may be over inflating a property’s value simply by not including the lost income from concessions.
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