The PwC/ULI report quotes a national office investor as saying, “Traditional gateway markets have gotten so competitive that we are looking at adjacent submarkets and the top secondary markets.” Extending the top 10 to the top 20 bears out this thesis: the report notes that it includes “four of the top secondary markets, four markets that are adjacent to primary or gateway markets, ten secondary markets and just two primary markets.”

Washington, DC itself has slipped to number 35 in the rankings, but its Northern Virginia suburbs are ranked at number 15. Similarly, New York City's outer boroughs rank higher at number 40 than Manhattan at number 46; when it comes to Manhattan, many survey respondents cited “too many cranes in the skyline.”

The annual Emerging Trends rankings weigh a market's “development prospects as well as its attractiveness for investment. The trend of smaller markets displacing larger ones as investment hubs is setting a new course for urban development that is reshaping cities across the nation,” says Patrick L. Phillips, global CEO of ULI. “These cities are positioning themselves as highly competitive, in terms of livability, employment offerings, and recreational and cultural amenities.”

Why the shift to smaller markets? The report the view of a real estate services firm executive that “since it feels like [we're] in an environment where we aren't expecting a severe correction, we might want to spend more time looking at demand-unconstrained markets and a little less [time] looking at supply-constrained [markets].” The thinking, according to the report, is that “these markets could be positioned for more upside growth, and this looks even more attractive when one removes the fear of a cyclical bust.

“Only time and the dollar value of investments by market will tell whether this trend is here to stay, or whether the market will find itself reverting to the perceived safety of the gateway markets,” according to the report. “If nothing else, the prospect of a longer expansion cycle will give everyone an opportunity to look at some alternative markets.”

WASHINGTON, DC—More small cities, and fewer Texas markets. Those are a couple of the top-line observations to be made about this year's top 10 markets to watch for overall real estate prospects, as ranked in the Emerging Trends in Real Estate 2018 report from PwC US and the Urban Land Institute.

Only two primary markets—Los Angeles and Boston—made this year's top 10, and at the lower end of the rankings, at that. This year's list features a new number one, Seattle, which got there on the strength of its job opportunities, diverse economy and young, educated workforce.

A Texas market had held the top spot for each of three previous years: Austin in the 2017 report, Dallas/Fort Worth two years ago and Houston in the 2015 edition. Although Austin and the Metroplex do figure in the top 10, at numbers two and five, respectively, Houston is now at number 60, due mainly to the disruption in the energy sector. (The survey of nearly 2,500 industry members was conducted prior to Hurricane Harvey's destructive sweep through the Houston region.)

Along with Austin, D/FW, Los Angeles at number seven and Boston at number 10, other markets in the top 10 include Salt Lake City at number three, Raleigh/Durham at number four, Fort Lauderdale at number six, San Jose at number eight and Nashville at number nine. “The growing interest in smaller cities by real estate investors is influenced by their relative affordability, coupled with a concentration of young, skilled workers,” says Mitch Roschelle, PwC partner and co-publisher of the report. “The diverse, robust economies of these smaller cities make them very desirable to investors.”

The PwC/ULI report quotes a national office investor as saying, “Traditional gateway markets have gotten so competitive that we are looking at adjacent submarkets and the top secondary markets.” Extending the top 10 to the top 20 bears out this thesis: the report notes that it includes “four of the top secondary markets, four markets that are adjacent to primary or gateway markets, ten secondary markets and just two primary markets.”

Washington, DC itself has slipped to number 35 in the rankings, but its Northern Virginia suburbs are ranked at number 15. Similarly, New York City's outer boroughs rank higher at number 40 than Manhattan at number 46; when it comes to Manhattan, many survey respondents cited “too many cranes in the skyline.”

The annual Emerging Trends rankings weigh a market's “development prospects as well as its attractiveness for investment. The trend of smaller markets displacing larger ones as investment hubs is setting a new course for urban development that is reshaping cities across the nation,” says Patrick L. Phillips, global CEO of ULI. “These cities are positioning themselves as highly competitive, in terms of livability, employment offerings, and recreational and cultural amenities.”

Why the shift to smaller markets? The report the view of a real estate services firm executive that “since it feels like [we're] in an environment where we aren't expecting a severe correction, we might want to spend more time looking at demand-unconstrained markets and a little less [time] looking at supply-constrained [markets].” The thinking, according to the report, is that “these markets could be positioned for more upside growth, and this looks even more attractive when one removes the fear of a cyclical bust.

“Only time and the dollar value of investments by market will tell whether this trend is here to stay, or whether the market will find itself reverting to the perceived safety of the gateway markets,” according to the report. “If nothing else, the prospect of a longer expansion cycle will give everyone an opportunity to look at some alternative markets.”