Other regions have discovered huge value in walkable urban places while North Texas lags. But that is changing—fast.
BY CHRISTOPHER B. LEINBERGER AND TRACY LOH PUBLISHED IN D MAGAZINE DALLAS AND THE NEW URBANISM 2018
This piece is a feature from our special edition, Dallas and The New Urbanism. The magazine examines the successes and pitfalls of the urbanist movement in a region well known for its dependence on the automobile.
At this moment, before our very eyes, the entire nation is undergoing a structural shift that is generational, deep, and pervasive. It is more important and will be more lasting than the usual real estate cycles that Dallas and Fort Worth know so well. This structural shift is forcing sweeping change in how cities create their built environments, including housing, workplaces, cultural facilities, and even sports facilities. Cities that respond well will flourish; those that don’t will fall behind in capturing the huge opportunities in value creation this shift represents.
Dallas-Fort Worth is predicted to grow substantially. How it grows will determine its future wealth and its place among the world’s great metro areas.
The size of the built environment may surprise you: it represents 35 percent of the assets of the economy—by far the largest asset class. This is where our wealth is. A structural shift in how this wealth is invested and what it returns has tremendous implications. The structural shift currently underway is not the first; we can understand and anticipate where the market is going by revisiting the past.
Forms of the Built Environment
Fountain of Youth: Southlake Town Square offers shops and retail around a communal gathering space.
First, it is important to understand that the built environment takes two basic forms: walkable urban and drivable sub-urban. There are many variations, but broadly speaking there are just these two.
It is important to note that walkable urban development can occur in both central cities and a region’s suburbs. Likewise, drivable sub-urban development can occur in both central cities and the suburbs. There are many drivable sub-urban parts of the central cities of Dallas and Fort Worth, just as walkable urban places are in the suburbs, such as Legacy in Plano, Southlake Town Square, and Grapevine Main Street, and many other places.
Walkable urban is the oldest form employed in building cities and metropolitan areas. This type of development is the basis of how we have built our cities since Çatalhöyük (in present-day Turkey) around 9,500 years ago—the oldest city known. Walking has been the primary means of getting to and getting around these kinds of places. The distance that most people feel comfortable walking is about 1,500 to 3,000 feet, which limits the geographic size of a walkable urban place. Our research has shown that the average walkable urban place in metropolitan Washington, D.C., is 306 acres, about the size of three regional malls, including their parking lots.
ABOUT THIS STORY
The George Washington University Center for Real Estate and Urban Analysis, working with the Urban Land Institute, the North Central Texas Council of Governments, and D Magazine, are in the process of completing the WalkUP Wake-Up Call for the DFW metro area. This never-before-completed analysis will be a nearly 100 percent census of all real estate product in the region, including owner-user and publicly owned space.
It will define where the potential, emerging, and established walkable urban places are and how they compare to the drivable sub-urban locations in Dallas-Fort Worth with regard to place-based economic and social equity performance. This article is based on preliminary results of the WalkUP analysis. The complete analysis will be published in October 2018. Our appreciation to Shea Byers of PM Realty Group for leading this effort locally, Scott Polikov of Gateway Planning, Brandon Palanker of 3BL Strategies, and DFW donors to the George Washington University for their support.
Beyond that distance, most people will use another easily available means of transport. Historically that has meant a horse, wagon, bike, public transit (rail or bus), or a car. Within that defined walkable urban place, walking provides access to many if not all everyday needs—shopping, social life, education, civic life, and maybe even work. This mixed-use character means the walkable urban place has a relatively high density, generally between the density of places like downtown Grapevine or Watters Creek in Allen at the lower end of density, to places like Main Street in Dallas or Sundance Square in Fort Worth in higher-density places.
The second form of built environment is drivable sub-urban, using a term that intentionally employs a hyphen to indicate that it is fundamentally different from and less dense than an urban place. Drivable sub-urban development segregates the various needs of everyday life from the other: retail is in a shopping center, work is in a business park, housing is in a subdivision, and the only way to connect these is by car. Walking is generally not a safe or viable option, nor is generally any other form of transportation, such as public transport or a bike. The early 20th-century introduction of cars as a means of transportation was the obvious prerequisite for the drivable sub-urban form of development, enabling a never-before-known-in-human-history form of building and living.
Dallas-Fort Worth will grow substantially. How it grows will determine its future wealth and its place among the world’s great metro areas.
And once this new form was introduced after World War II, this first structural shift in how we build feverishly took hold, especially in Dallas.
Today’s homebuyers, real estate developers and investors, government regulators, and financiers have come to understand the drivable sub-urban model extremely well, turning it into a successful set of development formulas. This means that real estate has been commoditized, just like agricultural products or stock of a publicly traded company, into standard real estate product types. This is why the country has come to look alike no matter where you go; a strip mall in Arlington looks like a strip mall in Paramus, New Jersey, or Palo Alto, California.
Drivable sub-urban development was a major economic driver for the mid- and late 20th century, especially in a state like Texas, which made its living literally providing the fuel for this way of building and living. As we were inspired to “See the USA in your Chevrolet,” the 1950s GM sales jingle, we were making those who built and were allowed to buy into the suburbs wealthier. Drivable sub-urban development put a foundation under the economy and galvanized the dominant industry of the industrial era—the building of automobiles and trucks, including the support industries of road-building, finance, insurance, and oil. Drivable sub-urban development was essential to American economic growth in the mid- to late 20th century.
Economic Functions of the Built Environment
Within a region, places play one of two economic functions, either regionally significant or local serving. Regionally significant locations, sometimes referred to as “sub-markets” by commercial real estate brokers, may have:
- Concentrations of jobs
- Civic centers
- Institutions of higher education
- Major medical centers
- Regional retail
- One-of-a-kind cultural, entertainment, and sports facilities
Regionally significant land, combining walkable urban and drivable sub-urban forms, constitutes less than 5 percent of all metropolitan land mass, according to our research. Regionally significant land use is where the vast majority of the DFW region’s wealth is created. In fact, it is why the region exists.
Walkable Urbanism Rankings for the 30 Largest U.S. Metros, 2016
(based on percentage of office, retail, and multifamily buildings)
Pent-up Demand for Walkable Urbanism
The structural shift underway today in how we build is actually a return to the original way of making cities: walkable urbanism. We looked at the top 30 U.S. metropolitan areas by population in 2016 and conducted a real estate census of each region’s walkable urban places. In all 30 metros, we found that WalkUPs (for “walkable urban places”) command rent premiums across real estate product types and that in the current national real estate cycle (since 2010), WalkUPs are gaining market share in every metro region. In other words, in every major U.S. city, people pay more to be in a WalkUP, and market share growth is going to WalkUPs, while drivable sub-urban is losing market share. We ranked the top 30 metros by the share of their overall real estate inventory that we found located in WalkUPs.
This nascent shift is being driven by our changing economy. Today, participants in the knowledge economy, both companies and their employees, have moved to and are demanding walkable urban places. Many downtown turnarounds have been led by knowledge-based companies, such as Spotify, Twitter, Google, WeWork, Yelp, Dropbox, Compuware, Quicken, and Square, among many others. They are locating south of Market Street in San Francisco, in New York’s Meatpacking District, and even in downtown Detroit.
The knowledge economy is relocating to walkable urban places because WalkUPs attract knowledge talent and stimulate productivity.
The same trend is occurring in the urbanizing suburbs, such as Cambridge in metro Boston, Bellevue in metro Seattle, and Perimeter Center in Atlanta. Even the Research Triangle of Raleigh-Durham-Chapel Hill, North Carolina, is attempting to urbanize what has been the quintessential drivable sub-urban business park.
The knowledge economy is relocating to walkable urban places because WalkUPs attract knowledge talent and stimulate productivity. Our research shows a significant correlation between the most walkable urban metros and both higher education (measured by the percentage of the population over 25 years of age with a college degree) and metropolitan GDP per capita. In 2013 the Milken Institute released a study of the GDP performance of 261 U.S. metros that concluded: “The overall explanatory power of the relationship [between higher education and GDP per capita] is strong and robust. More than 70 percent of the variation in real GDP per capita across the 261 metros from 1990 to 2010 is explained [by higher educational attainment].”
The six highest-ranked walkable urban metropolitan areas of the largest 30 U.S. metros are New York City; Washington, D.C.; Boston; Chicago; San Francisco; and Seattle. These six metros have 40 percent of their workforce holding college degrees, compared to 30 percent or less in the seven least walkable urban metros. This translates into the most walkable urban metros having an average GDP per capita of $74,241. The seven lowest-ranked metros have an average GDP per capita of $49,061. The most walkable urban metros have a whopping 49 percent premium in GDP per capita over the lowest ranked. This is the same premium per capita that first-world Germany has over second-world Croatia.
Dallas-Fort Worth’s Walkable Urban RankingRocky Mountain High: Belmar in Lakewood, Colorado, is a prime example of drivable sub-urban transforming into walkable urban.
Dallas-Fort Worth ranks among the least walkable urban of the nation’s largest 30 metropolitan areas, along with the likes of Tampa and Orlando, Florida, and Phoenix. Even Houston was ranked higher than Dallas-Fort Worth. While no surprise to most residents who spend a good percentage of their life in a car, it is a rare low ranking for a region with so many remarkable achievements and economic successes.
Having said this, it is important to point out that the region does stand out in GDP per capita from the other predominantly drivable sub-urban metros. Your 2016 GDP per capita was $65,154, which is close to the six most walkable urban metros. There are two possible conclusions to draw from this anomaly. First, you do not need to change from the drivable sub-urban development patterns, since it seems to be working for you. The second conclusion is that you have hung on to a mid-20th-century development pattern for too long and eventually the price you pay will be heavy in terms of talent attraction, corporate relocations, and poor investment returns in comparison to other cities. Our guess is that the demand for walkability is too strong to ignore. Sub-urban development will continue, but it will pale by comparison to the investment returns and low governmental costs of walkability.
Metropolitan Dallas-Fort Worth Established Walkable Urban Places or WalkUPs
Urbanizing in and Around Downtowns
We found 35 established WalkUPs in DFW in our 2018 in-depth analysis, up from the 18 we found in the 2016 general analysis referenced earlier. We have ranked them by a “composite premium” measure, which combines the weighted average rental premium across products that the place commands, discounted for vacancy. A premium above 1 means the place outperforms the DFW regional average. A premium below 1 means it underperforms and has high potential for investment.
Most people think that walkable urban places tend to be in and near downtown, which is partially true. Downtown Dallas and downtown Fort Worth have redeveloped in remarkable ways over the past 20 years, such as Sundance Square, Dallas Main Street, Bass Performance Hall, Klyde Warren Park, etc. While downtown Fort Worth is slightly higher ranked than downtown Dallas, both are low to middle of the rankings. This represents a significant investment opportunity as both downtowns come up to the level of downtown Seattle or Washington, D.C., both of which were very much like Dallas and Fort Worth only a decade ago.
Today, the downtown-adjacent WalkUPs of both Dallas and Fort Worth outperform their downtowns in walkable urbanity. Surrounding downtown Dallas is Deep Ellum, Victory Park, and, most impressive, Uptown. Surrounding downtown Fort Worth is the Near Southside and the city’s Cultural District.
It is surprising that downtown-adjacent Dallas WalkUPs are outperforming downtown Dallas. These surrounding neighborhoods have been redeveloping first, followed by the somewhat lagging downtown. This is just the opposite of how other center cities throughout the country have redeveloped, where the downtown redeveloped first, followed by the downtown-adjacent WalkUPs.
Urbanizing the Suburbs
Not all market demand can be satisfied in city centers. A market exists for walkable urban places that are not as gritty as most center cities. The large number of people who opt for center cities enjoy their variety of people, diversity of uses, mixture of old and new, and the excitement of crowds. But not everyone wants to share heavily used sidewalks or look up at tall buildings. Suburban walkable urbanism tends to be nearly Disney-esque in its cleanliness and newness. WalkUPs like Reston Town Center in Virginia, Avalon north of Atlanta, and Sugar Land in metro Houston all represent examples of “just-add-water instant urbanity” that has significant appeal to certain market segments.
Another major factor in suburban urbanization is the quality of schools. While many center city school districts are slowly turning themselves around, many young couples are not willing to wait or work hard to effect change in their city schools. They bolt to suburban systems as soon as they have children. Many choose walkable urban suburbs with outstanding schools in order to have the best of two worlds: good schools and walkable urbanism. Suburban WalkUPs like Santa Monica and Palo Alto in California; Bellevue, Washington; Evanston, Illinois; Bethesda, Maryland; and Arlington, Virginia, offer both good schools and walkable urbanism.
A lesson can be learned from Arlington, Virginia, one of the best urbanizing suburban models in the country. Most new development in the past 20 years has been in multifamily residential, both for rent and for sale. The typical attitude of suburban towns toward multifamily development is to ban it. The fear is those units will contain families with children, and educating those children would impose prohibitive costs on the school district. However, Arlington has found that the school-generation rate for residents of multifamily developments in its seven WalkUPs is one-eighth the rate found in its for-sale single-family neighborhoods. The new multifamily households are paying school taxes but sending hardly any kids to the schools—a huge benefit to a school district.
Urbanism in the suburbs improves quality of life and home values in the adjacent single-family neighborhoods.
There is another reason urbanization benefits the suburbs: it improves the quality of life of the single-family neighborhoods immediately adjacent to growing WalkUPs. This is counterintuitive. Generally these dense, walkable urban places have faced vigorous NIMBY opposition, particularly from the immediate neighborhood. However, our experience and research show great walkable urbanism, particularly with the thoughtful management of noise, overflow parking, and cut-through traffic, improves quality of life for the immediate neighborhoods. This is achieved by providing households with the best of two worlds: suburban living within walking distance of restaurants, shopping, transit, and maybe work. Our research shows 40 to 100 percent per square foot valuation premiums for nearby for-sale housing in comparison to similar housing in the same school district but not within walking distance of a WalkUP. As a result, suburban Washington, D.C., and parts of Long Island, New York, have begun to see NIMBYs turn into YIMBYs (Yes in My Back Yard), advocating for increased density and walkable urban place development.
Neither research nor our experience has delivered a final verdict, but it appears likely that at least 50 percent of the demand for walkable urbanism will be satisfied in the suburbs, as it is in metro Washington, D.C., the leading urbanizing suburban metro. It may be even higher. Yet it is important to note that the demand for walkable urbanism, both in the center city and in suburbs, will be concentrated in only 3 to 5 percent of the land mass. The rest of the drivable sub-urban locations in the suburbs will stay the same as long as the car remains a viable means of transportation.
One of the best examples of a drivable sub-urban suburb transforming into a walkable urban place is Belmar in Lakewood, Colorado, a first-ring suburb of Denver. The first regional mall in the metro area, Villa Italia, occupied the Belmar site beginning in the early 1960s and provided the tax base for the jurisdiction and a shopping destination for two generations of Denver metropolitan residents. However, by the late 1990s, the mall was dark, shrinking the town’s tax base dramatically. A developer, in joint venture with the town, bulldozed the bulk of the mall, built a grid of walkable streets, and focused on urban entertainment (restaurants, a 14-screen movie theater, specialty shopping), high-density housing, and some offices in the first phases. It became a stunning success for the city and for the developer as a new WalkUP emerged from the dust of the bulldozed mall. Many more regional mall transformations are underway in suburban Denver as a direct result.
Walkable Urban Absorption Metro DFW, Atlanta, and Washington
(office and multifamily rental)
What Can Dallas-Fort Worth Learn From Comparable Metros?
There are two metropolitan areas that have been as infamous for their sprawl as Dallas-Fort Worth over the past 60 years: metropolitan Atlanta and Washington, D.C. All three metros are more similar than you may think, including:
- They grew from modest Southern metro areas of about 1 million in population in 1950 (metro Dallas at 1 million people, metro Atlanta also at 1 million, and Washington, D.C., at 1.5 million) to approximately 6 million by 2016.
- The huge mid- and late 20th-century economic booms in these three metro areas, while driven by different industries, took the form of being almost entirely drivable sub-urban. Residents abandoned their center cities, sprawling to the hinterlands that had no topographical barriers.
- All three created some of the iconic drivable sub-urban edge cities: Galleria in metro Dallas, Perimeter Center in metro Atlanta, and Tysons Corner Center in metro Washington, D.C.
- The growth patterns of all three metros focused on the “favored quarter” where economic growth primarily went, due to racial housing patterns. The favored quarter of Dallas was to the north, Fort Worth was to the southwest, Atlanta was to the north, and Washington, D.C., was to the northwest.
There is one major difference between how these three metros grew that has proven to be significant in satisfying the walkable urban market: rail transit infrastructure. Washington, D.C., and Atlanta got two of the three 1970s federally funded subway systems (the third was San Francisco). The Metro system in Washington, D.C., and MARTA system in Atlanta have built an armature around which walkable urban development has and is forming. The rail system in Dallas came after the great drivable sub-urban sprawl of the late 20th century, which means the length of the system and therefore commuting times to get between walkable urban concentrations are exceedingly long. In Atlanta and Washington, D.C., the vast majority of walkable urban development has been built in relatively concentrated, close-in places served by rail transit. Meanwhile, DART has been chasing low-density sprawl.
In the Dallas market, walkable urban office space is today 20 to 30 percent more valuable and apartments are 40 to 50 percent more valuable than sub-urban.
Our research shows that there are laggards and leaders in the structural shift by metropolitan areas toward walkable urban development. Metro Washington, D.C., is the leader of these three comparable metropolitan areas, metro Atlanta is following as fast as it can, while Dallas-Fort Worth lags but is still moving toward more walkable urbanism. Metro Washington, D.C., had 33 percent of its total 2010 inventory, built over the past 200 years, of office and apartments in walkable urban places, yet 91 percent of the new absorption between 2010 and 2015 has been walkable urban. Metro Atlanta had 16 percent of its total inventory in 2010 in walkable urban places but 49 percent of absorption from 2010 to 2015 has been in walkable urban. Dallas-Fort Worth had only 9 percent of its 2010 inventory in walkable urban places, but—in a sudden spurt—21 percent of its absorption between 2010 and 2017 went to walkable urban.
In all three metros, walkable urban has increased in market share absorption by two to three times sub-urban development. (In Dallas-Fort Worth it is 2.3 times faster.) The shift is moving all three metros in the same walkable urban direction. They started at different bases but today are responding to the same demand. The last time these three metros saw market shifts of this magnitude was in the 1980s—but going the opposite direction as white flight and newly constructed highways created the drivable sub-urban boom.
These market share shifts are impressive. But the premiums for walkability are even more impressive. In the Dallas market, walkable urban office space is today 20 to 30 percent more valuable and apartments are 40 to 50 percent more valuable than sub-urban. Dallas-Fort Worth walkable urban product is absorbing more than two times faster than sub-urban, with a 20 to 50 percent valuation premium.
There is only one explanation for such a phenomenon: pent-up demand. If Dallas-Fort Worth is anything like other metro areas we have studied, it will take 20 to 40 years to catch up with that demand, since we add only 2 percent to the built environment inventory in a good year.
There are a number of benefits in being a follower, one being that you can learn from other metro areas. Walkable urban places require entirely different skill sets than drivable sub-urban development. This includes fundamentally different ways to acquire land, plan, design, finance, develop, market, manage, own over time, and, most important, engage in what is known as “place management.” Engaging in place management, whether through a nonprofit like Downtown Fort Worth Inc. or Downtown Dallas Inc., or through private place management like in Legacy West or Watters Creek, is essential for success. We think place management is a new level of societal governance, joining the three levels of government we have today (federal, state, and local). Note we refer to this as “governance,” not “government,” and it generally arises out of the private sector.
Meeting the pent-up demand for walkable urbanism will put a strong foundation under the region’s economy and local government finances. Developing walkable urban in Dallas is in 2018 comparable to the building of the drivable sub-urban in, say, the 1970s. There are decades of demand to be satisfied that will put a foundation of 1 to 2 percent of GDP growth per year under the regional economy.
That walkable urban growth can also be supported by infrastructure that, counterintuitively, is much cheaper to build than the spread-out roads, sewer and water lines, electric, communications, and other infrastructure required by sub-urban development. As previously mentioned, it is concentrated in 3 to 5 percent of the land mass. Walkable urban infrastructure is one-tenth the cost for each supportable square foot cost of development, even accounting for rail transit. Drivable sub-urban infrastructure is unbelievably costly and inefficient. This is because infrastructure cost is determined by the distance that is required and the intensity of use. For example, a mile of sewer line costs about the same whether it is used for one-house-to-the-acre housing or 40 housing units to the acre; the difference is that those fixed costs are one-fortieth per walkable urban housing unit.
Dallas-Fort Worth is proceeding down a fundamentally different path of development than it has experienced over the past 60 years. It is more complex and has a different risk profile. With leadership, it will create a new economic base under the regional economy and give investors a substantial return on investment while meeting this different structural demand. Properly incentivized and managed, it can also recapture value and expand opportunity for areas long left behind. Dallas-Fort Worth has only started capturing the environmental, social, and economic benefits of walkable urbanism.
Eight Types of WalkUPs in Dallas-Fort Worth
GWSB research shows there are eight types of regionally significant walkable urban places in Dallas-Fort Worth. A ninth type, called an Innovation District, described by the Brookings Institution as an area “where leading-edge anchor institutions and companies cluster and connect with startups, business incubators, and accelerators” does not appear in Dallas-Fort Worth.
The traditional center of the metro’s central city. Dallas-Fort Worth is one of the rare “binary” metropolitan areas, like Minneapolis-St. Paul, so it has two center city downtowns.
Neighborhoods surrounding the downtown in a 360-degree fashion, such as Dupont Circle in Washington, D.C.; Capitol Hill in Seattle; Uptown in Dallas; and the Near Southside in Fort Worth.
Local-serving commercial districts in the early 20th century that went into decline in the late 20th century but have experienced a recent revival as regionally significant WalkUPs, such as Fourth Avenue NE in Washington, D.C.; West Hollywood in Los Angeles; and Knox-Henderson in Dallas.
Institutions of higher learning that have embraced their community, such as UCLA, Penn and Drexel in West Philadelphia, and Georgia Tech in Atlanta. SMU, the University of Texas at Arlington, and the University of North Texas at Dallas aspire to a similar role.
Major Town Center
Eighteenth- and 19th-century towns that the metro area grew to include and that have enjoyed a recent revival, such as Evanston in metro Chicago, Bellevue in metro Seattle, Decatur in metro Atlanta, and Grapevine in Dallas-Fort Worth.
Small Town Center
Eighteenth- and 19th-century farm towns that the metro area grew to include and have enjoyed a recent revival, such as Roswell in metro Atlanta; Leesburg in metro Washington, D.C.; and Roanoke in
Redeveloped Drivable Sub-urban
Strip and regional malls that have urbanized, such as Belmar in metro Denver; Tysons Corner in metro Washington, D.C.; Perimeter Center in metro Atlanta; and Addison Circle and Cityplace in Dallas-Fort Worth.
A complete WalkUP built from scratch, such as Reston Town Center in metro Washington, D.C.; Atlantic Station in metro Atlanta; Easton Town Center in metro Columbus, Ohio; and Legacy (greenfield) and Victory Park (brownfield) in Dallas-Fort Worth.
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Christopher B. Leinberger is the Charles Bendit Distinguished Scholar and Research Professor of Urban Real Estate at the George Washington University School of Business and Chair of the Center for Real Estate and Urban Analysis. Dr. Tracy Loh is a senior data scientist at the Center for Real Estate and Urban Analysis.