’18-hour’ cities emerge as hot spots
A Pinot’s Palette in fast-growing Denver, one of the so-called 18-hour cities.
New York, Los Angeles and San Francisco have a well-earned reputation as cities that never sleep. But those operators who appreciate a little shut eye—and lower costs—are targeting locations in up-and-coming “18-hour” cities.
It’s hard to believe that relatively small metros such as Charleston and Nashville could be generating a lot of excitement related to expansion opportunities. But, that is exactly the case as these smaller cities attract a surge of population and job growth and a wave of new development activity.
In fact, the continued rise of 18-hour cities is one of the top real estate topics highlighted in a 2016 Emerging Trends in Real Estate report published by PwC and the Urban Land Institute. Cities such as Austin, Denver, San Diego and San Antonio are not only earning points for being cool and trendy, but they are also attracting notable growth and business expansion.
What does 18-hour city mean? There is no exact definition, but the term refers to cities that are more than the typical 9-to-5 communities, where the sidewalks roll up when offices empty out, but less than the 24/7 metropolises.
So, what’s in the secret sauce behind that newfound success? To a certain extent, those smaller metros are taking a page from their bigger counterparts and replicating some of the pieces that make gateway markets so attractive, noted the emerging trends report. 18-hour cities are undergoing urban revitalization that is creating more live-work-play amenities ranging from high-rise apartments to sports stadiums.
Definitely, there is a bit of a buzz around 18-hour cities, noted Anjee Solanki, national director of retail services for Colliers International. One of the key characteristics is a strong in-migration, notably among the younger generation. Generally, these cities are finding success in attracting millennials, because they have embraced what the younger generation is looking for in terms of better mass transit, more open space and local charm, said Solanki.
For example, Portland, Oregon, has taken historic buildings in its Pearl District that have unique architecture and history and renovated and converted those buildings to new uses such as galleries, restaurants and boutique hotels.
“So, as cities become a little more in tune with what people are looking for, those cities are going to see significantly more growth in terms of their population and significantly more growth in terms of businesses looking to move in to those areas,” said Solanki.
Targets for franchises
Pinot’s Palette is one franchise concept that is expanding in a number of 18-hour cities, such as Austin, Denver, Seattle and Atlanta. “We didn’t coin the term, but we were really seeing opportunities in these growing markets from job growth, income growth, lower cost of living and higher discretionary incomes,” said Charles Willis, co-founder and president of Pinot’s Palette, a Houston-based franchise that pairs wine and painting. The company, which started franchising in 2011, has more than 150 locations in 33 states and has a goal to open 75 more in 2016.
For example, Pinot’s Palette has a multi-unit studio owner in Austin who has two studios open and is looking to open additional locations in 2016. “It is great to see Austin on that list,” said Willis. “It has always been that hidden gem for people who live in Texas, because it has humongous population growth and it is a really fun city to visit.” According to a report by the Urban Institute, the population of the Austin metro area is expected to grow by more than 55 percent by 2030.
18-hour cities are attractive because they have a lot of the characteristics that a New York or Los Angeles would have in terms of population growth and vibrant economy, but they don’t have the same costs, notably for commercial real estate or media buying. “What that translates to for franchisees is that more of those dollars flow to the bottom line than if you were in some of these more expensive cities,” said Willis.
Drivers for growth
Denver is another example of an 18-hour city that is getting tremendous attention. “It went from being viewed as kind of a cow town to being on everyone’s hit list and radar,” said Tami Lord, a vice president at SRS Real Estate Partners in Denver. Denver has been recognized as one of the fastest-growing cities in the U.S., and the Urban Institute predicts that its population will expand by 25 percent by 2030.
Job growth is one driver, which ranges from high-growth tech and aerospace sectors to natural resources, as well as a preference for the outdoor lifestyle and activities that Colorado offers. Denver also has some of the same attributes that are driving activity in a number of other 18-hour cities. The city has made strides in urban revitalization and conversion of blighted areas to trendy hot spots. “There was a time that downtown Denver was not a place that you wanted to get caught at night, and that has very much changed over the last 10 to 15 years,” said Lord.
Restaurants, retailers, entertainment and service businesses are following the job and housing growth. Given its healthy lifestyle, Denver has seen a boom in health-and-fitness concepts expanding in that market with companies such as Crunch Fitness, Anytime Fitness and The Joint. “They are literally scouring the market and expanding as fast as they can,” said Lord. Restaurants also have been very active across the board with concepts such as Freddy’s Frozen Custard & Steakburgers, Dunkin’ Donuts, Five Guys and Bar Louie.
Cities on the fast track for growth are attracting attention from both domestic and international brands. For example, Solanki was talking with a Dutch company recently that was looking to expand its presence in the United States with a licensed operator format. Two of the cities on the company’s short list for that entry are Charlotte and Nashville. The company wanted cities that offer greater balance between expenses and margins, meaning markets that offer good growth opportunity, and yet have lower costs related to labor, worker’s comp insurance and real estate, she said.
International brands also have an easier time entering 18-hour cities and establishing a presence versus going to a very large market such as a New York City, Los Angeles or San Francisco where it is more difficult to stand out in a very competitive and crowded place.
The bottom line is the population and the job growth occurring in those markets. “When you have population growth like you have in these 18-hour cities, you have so many other things coming with it,” said Willis.
Developers are building commercial real estate and new housing and opening restaurants, wine bars and retail shops. The growth in those cities also is an added benefit as it allows existing franchisees to open multiple stores in the market, which helps to boost the overall brand visibility, he added.