The surprising reasons real estate investors are flocking to midsize cities

What is an 18 hour city?

What is an 18 hour city?

The term “18-hour city” describes a medium-sized metropolitan area with the potential to become a large metropolis in the ranks of New York, San Francisco, Chicago and similar “24-hour cities”. Some real estate investors see opportunities to achieve above-average returns by acquiring properties in 18-hour metropolises, where prices are still moderate, but due to their strong labor markets and attractive quality of life, among other things, the prospects for future growth are good. You may want to speak to a financial advisor if you are looking for real estate or alternative investment opportunities.

18 hour city background

The not-for-profit Urban Land Institute and consulting firm PwC co-coined the term in 2015 to describe cities identified as attractive real estate markets in an annual housing market survey. The label evokes the concept that these affordable cities were a little less bustling than larger, more established markets like New York, Boston and Chicago, where activity is happening around the clock.

Aside from being less busy than larger cities, 18-hour cities differed from other mid-sized markets in their apparent potential to one day become as big as 24-hour cities, leading to a surge in real estate values. Since then, the concept of 18-hour cities has become widely known as a viable investment opportunity in the real estate industry.

There is no industry standard definition of what constitutes an 18-hour city. In general, they are considered secondary urban areas that are likely to become important markets over time due to continued immigration. Special qualities include:

  • Strong population growth compared to other cities

  • Low cost of living compared to major metropolitan areas

  • Well developed infrastructure including public transport

  • Jobs and wages are growing faster than in most cities

Other traits sometimes attributed to 18-hour cities include stable local government, the presence of major employers as anchors, and a high capitalization rate, a number real estate investors use to gauge the future profitability of a real estate investment.

18 Hour Cities in 2022

Charlotte is an 18 hour city

Charlotte is an 18 hour city

The list of 18-hour cities identified by ULI and PwC changes more or less annually. Usually there are about 10 cities on the list. In 2022, three cities previously identified as 18-hour cities were moved to a new category, supernovas, for outgrowing their 18-hour peers. These are Austin, Nashville and Raleigh/Durham. Other 18-hour cities in 2022 include:

Of these, Fort Lauderdale was added earlier this year. The seven 18-hour cities all have active inner cities and suburbs with urban features.

Investing in 18 Hour Cities

Investors seeking above-average returns invest in 18-hour city property markets in a variety of ways. Housing is a key focus as these markets generally have relatively low property prices compared to 24-hour cities, but also have strong demand for housing due to population growth. Commercial real estate, including multi-family, retail, office and industrial real estate, also offers opportunities due to the strong economy in these cities.

Some investors are getting involved through real estate crowdfunding sites like Crowdstreet, which focuses on commercial real estate in mid-sized markets, including some of the 18-hour cities. Investors can also purchase individual properties, such as single-family homes. This is easier to do in mid-size markets like the 18-hour cities, where property values ​​haven’t risen at the rate they have in places like San Francisco and New York.

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Risks of investing in 18-hour cities

Risks of investing in 18-hour cities

Risks of investing in 18-hour cities

When investing in an 18-hour city, one assumes that the market and its real estate values ​​will rise to a level similar to the rises in larger 24-hour cities. However, there is no guarantee that this will happen. A city may stop growing or grow more slowly, making it difficult to generate the desired returns.

Another thing to keep in mind is that these cities don’t have the businesses that specialize in the way New York City does. So when either of these cities takes a hit, it could be difficult to recover from, while NYC almost always bounces back stronger than before. That makes these alternate cities an opportunistic but risky endeavor that could either really pay off or you could struggle with for some time.

However, the generally lower cost of living in 18-hour cities, combined with good job markets and an attractive quality of life, is likely to draw the attention of real estate investors for the foreseeable future.

bottom line

18-hour cities, which are slightly less busy than large metros, where the pace continues unabated 24 hours a day, have become a focus for many real estate investors looking to get on the ground floor of the next generation of large metros. These cities generally have medium-sized but fast-growing populations, strong economies with expanding labor markets, good infrastructure and quality of life, and significantly lower property prices and cost of living than larger cities.

Investing Tips

  • If you’re looking to explore investing in 18-hour cities, a financial advisor can help you understand your options. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool puts you in touch with up to three financial advisors operating in your area and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.

  • 18-hour cities are already becoming more expensive as investors shy away from inflated values ​​in the big metros and raise prices in the smaller markets. Price increases were driven in part by the home-working trend initiated during the pandemic, which allowed more people with big-city salaries to live in smaller towns where their money reached further. Read our guide to calculating your real estate investment cash flow to ensure you have a sustainable plan in these smaller markets.

  • When you’re ready to invest, be sure to line up all of your ducks. Start with our investment calculator to see what your potential investment could be worth over the next 10 or 20 years to see if there are enough opportunities to move forward.

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