U.S. Markets closed

Never mind New York – Dallas and Nashville are hotter for real estate: PwC

Lawrence Lewitinn
Lawrence Lewitinn

New York City? Fuhgeddaboudit! That’s because cities like Denver and Nashville are about to steal the real estate spotlight.

A new study shows investors are losing enthusiasm for large, trendy real estate markets in “Gateway” cities such as New York, Chicago, and Washington, D.C. Increasingly, they are turning their gaze toward secondary and tertiary cities like Austin, Charlotte, and Nashville. At the top of investors' lists: Dallas/Fort Worth, according to PricewaterhouseCoopers and the Urban Land Institute survey of nearly 1,500 real estate industry professionals.

2016 Rank



Dallas/Fort Worth














San Francisco


Portland, OR


Los Angeles




Manhattan, New York City




Brooklyn, New York City






Washington, D.C.

Source: Emerging Trends in Real Estate 2016 survey, PricewaterhouseCoopers & Urban Land Institute

Meanwhile Manhattan failed to crack the top 10 for the second year in a row, coming in at No. 15 on the list. Across the East River, Brooklyn has tried to sell itself as the epitome of cool but real estate investors are cooling on it instead. Once the proud home of Mr. Kotter’s Sweathogs and now just the inspiration for mallrat teens at Urban Outfitters (URBN), Brooklyn is ranked at 21, above Indianapolis but below San Antonio.

The rankings were based on a combination of sentiment scores for investment, development, and homebuilding.

“It's a job creation story,” Mitchell Roschelle, the PwC real estate advisory leader who spearheaded the report, said, citing Dallas, Austin, and Nashville as examples. “Jobs chase the people. As employment rises, more people come, more jobs come, so it's really a good cycle.”

Employment growth, particularly from smaller companies, is what’s making secondary and tertiary cities more appealing than higher-cost, larger markets, he explained.

Still, there were some surprises. Houston, last year's top market, came in at No. 30 this year while Nashville, which doesn't have a reputation as a top tier location for real estate investments, cracked the top 10.

Washington, D.C., Boston, and Chicago failed to make the survey's top 10 while San Francisco and Los Angeles came in at No. 8 and No. 10, respectively.

“’Gateway’ markets that were viewed really largely as defensive plays by investors have sort of fallen by the wayside, and opportunities to enhance yield in more offensive plays really got in the spotlight,” said Roschelle. “That's why you see this rotation toward secondary and tertiary markets – to try to free up some of that sideline capital.”

The PwC/ULI survey also suggests a changing economy is having an effect on what types of real estate are popular.

Get the Latest Market Data and News with the Yahoo Finance App

Commercial real estate investors are shifting their gaze beyond industrial properties, for example. “Apartments remain hot and also what I refer to as derivative plays like student housing, senior housing, [and] medical office,” said Roschelle. “Those are going to be really interesting as they play out in 2016… Retail, not so hot. Full service hotel[s] in sort of suburban areas, not so hot – but limited service hotel[s], very, very hot.”

One thing that may be helping keep the apartment market buoyed is a shift from home ownership toward renting, a trend Roschelle expects will continue.

And while some – notably, DoubleLine’s (DBLTX) Jeffrey Gundlach and Equity Residential’s (EQR) Sam Zell – say it’s due to young people starting families at a later age, Roschelle points out that U.S. Census data show home ownership down across all generations.

“Everyone’s blaming the Millennials who are living on their parents' couch – [but] that’s really not the case,” he said. "The American Dream is certainly not dead but we're in really a cycle, which could be more secular than cyclical, of renting as opposed to buying.”

More from Yahoo Finance

3 charts that show why stocks, oil, & emerging markets could rally by year-end

Paying CEOs fat bonuses for stock performance doesn't work — Cornell study

Why the housing market could soon get positive news