Emerging Urban Fringe Neighborhoods Experience Rising Rents

Investors Shift Attention to Affordable and Innovative Areas on the Outskirts of City Centers

Urban neighborhoods just outside city centers are becoming attractive investment destinations globally as companies and developers seek new and affordable opportunities. These previously overlooked areas are now experiencing significant rent increases, rivaling primary central business districts.

For example, Berlin's Prenzlauer Berg neighborhood, known for its vibrant culture, has seen a 50% surge in prime office rents over the past five years. Other thriving neighborhoods include Chicago's Fulton Market with a 43% rent increase since 2019, Seoul's Gangnam neighborhood with a 24% rise in rents over five years, and Charlotte's South End with 33% growth. Even smaller markets like Minneapolis' North Loop have witnessed rent increases exceeding 13% in the same period.

JLL's report, "The Future of the Central Business District," highlights these flourishing areas as evolving creative, tech, and R&D clusters that are capturing investor attention. The report reveals that rental growth of more than 20% in the past five years is common in these submarkets.

Phil Ryan, JLL City Futures Global Insight Director, notes the transformation of these neighborhoods into vibrant communities with creative offices, residential spaces, boutique hotels, and curated retail products. He emphasizes the importance of placemaking, citing examples from Europe such as Berlin's MediaSpree and Prenzlauer Berg, where livability improvements and architectural distinction have played a key role.

Investing in these urban fringe neighborhoods poses challenges due to their limited footprint and saturation point. Assessing the area's liquidity, scalability, and long-term potential is crucial for investors. The ability to develop vertically, like in Chicago's Fulton Market, contributes to the neighborhoods' attractiveness and growth prospects.

While investing in these markets carries risks, such as market volatility and sizing demand for higher-end amenities, Ryan remains optimistic about the trend. He believes that off-core urban neighborhoods will continue to attract residents, businesses, and visitors, ultimately informing the revitalization of traditional central business districts in response to evolving work and travel patterns.