What Cities Do You Consider To Be "Gateway Markets"?
I've had this discussion with several people and always find their answers interesting. Which cities do you consider to be "gateway markets"? I think the CRE community has unanimously decided that NYC, SF, and DC are gateway markets; but that seems to be where the complete agreement stops and people begin to throw out cities like Boston, Chicago, LA, and over the past couple years we're starting to hear Houston a lot more.
Would love to hear your thoughts.
Gateway Cities in The United States
Gateway cities or gateway markets are usually the most liquid markets. Gateway markets are also the ideal brands (i.e the NY brand) that are most likely to an inflow of foreign investment.
- Boston
- New York
- Chicago
- Washington DC
- San Francisco
- Los Angeles
Key Takeaways
- There are 6 gateway cities and they are all well established real estate markets.
from certified user @teddythebear"
Having lived in gateway markets and now living in Houston, I can say this. Yes, NYC, D.C., Chicago, are well established, but if we are talking about growth markets, nothing beats Houston. While there aren't as many 'sexy" trophy assets in Houston. The smart investors care about returns, not just the looks. I've seen trophy assets in NYC and SF go for 3% cap rates. You'll be lucky to beat inflation after taxes. In Houston, you have a large population base and your investments get a higher return.
Recommended Reading
NYC, SF, DC, Boston, Chicago, LA and Miami.
End of discussion
Where did you hear the term "gateway markets"? I'm curious because I know someone who repeatedly uses the same term.
Anyways the "gateway markets" are predominantly NYC, SF, DC and Miami. Beyond the core four are LA, Boston and Chicago. Some people like to make the argument for Atlanta and Dallas, yet personally I don't see it.
Everyone in our office uses it, as well as all our lenders/borrowers/etc. I would like to hear someone's defense of Atlanta being a gateway market.
"Gateway markets" is a pretty commonly used term. I hear/read that all the time. They are what fez said. The "sexy six" I've also heard.
If you are not putting Houston in the mix, then you're not in CRE.
Houston? Really? C'mon bro.
Hate to break it to you, but foreigners don't get exited about the thought of owning trophy assets in Houston. Owning assets in London, Munich, Tokyo, etc is sexy. Houston? Not really. Houston does offer ample growth opportunity. Guess you're not in CRE?
While it may not be "sexy," you cannot ignore the amount of capital being infused throughout Texas, notably Houston and Dallas/FW. There is no room for debate about where the big six are: Boston, Chicago, LA, NYC, SF & DC. However, these markets have long been at the top of the list and there is less opportunity in today's market. Investors are looking to less developed markets that are dominated by specific industry, such as energy or tech. PwC & ULI publish a market report called "Emerging Trends in Real Estate," and of the top 10 'Markets to Watch', only 3 of the big six appear. Houston is ranked number 2, with Dallas/FW and Austin also in the top 10. Hard to deny what is going on in Texas right now. (and no, I am not a Texan, I'm in Florida)
Houston is in a boom right now fueled by the energy business and cheap government money. That's not to say the real estate market there isn't strong, and won't remain that way for some time, but it's no New York or San Francisco.
If I were a current real estate owner, I would much rather be holding property in a supply-constrained market like Boston than Houston.
Atlanta and Dallas? GTFO. Did you see the beating their office markets took in the downturn?
It's going to be hard to answer this question without knowing what is meant by "gateway market."
Having lived in gateway markets and now living in Houston, I can say this. Yes, NYC, D.C., Chicago, are well established, but if we are talking about growth markets, nothing beats Houston. While there aren't as many 'sexy" trophy assets in Houston. The smart investors care about returns, not just the looks. I've seen trophy assets in NYC and SF go for 3% cap rates. You'll be lucky to beat inflation after taxes. In Houston, you have a large population base and your investments get a higher return.
The Texas cities are definitely strong due to rapid employment and population growth, as well as multiple large corporate HQ's expanding or relocating to the state. I'm not used to hearing DFW or Houston labeled as gateway cities, but if growth remains strong, the institutional and international capital will continue to flow in.
Does anybody have thoughts on Chicago, and whether they will be able to keep investor appetite high despite the current instability? Unfortunately I am pretty far removed from the office asset class, and thus am not an expert in the subject.
Its actually the opposite, Houston has higher returns than NYC, D.C. This is because NYC, D.C. offer stability instead of returns. Cap rates are more compressed in these markets as they are established and in return provide a large safety net. Houston is not as established yet, so the returns are higher for higher risk.
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