William Pattison: The Evolution of Gateway Markets and Core Property Types in Commercial Real Estate
The commercial real estate industry has long used the terms “gateway markets” and “core property types” to categorize major metropolises like New York City, Boston, Washington D.C., Los Angeles, San Francisco, and Chicago as well as newer Class A assets across office buildings, multifamily properties, industrial warehouses and retail spaces. However, a recent report from MetLife Investment Management reveals that there is no authoritative methodology behind these terms.
According to William Pattison , Head of Real Estate Research and Strategy at MetLife IM , the origins of these terms can be traced back to the 1980s when they were used as a way to guide institutional investors towards lower-risk segments of commercial real estate. However today’s market dynamics have changed significantly with cities like Atlanta and Dallas now ranking highly for global real estate investment portfolios.
To address this shift in market trends over time,the report suggests five criteria for ranking gateway markets including market size,international capital,total rate of return stability,fiscal health,and climate change impact. Under this new definition,the top four gateway markets are Washington,D.C.,Seattle,A tlanta,and Dallas followed by traditional gateways such as New York,San Francisco,L os Angeles,Boston,and Chicago.
In addition,the concept of core property types has also evolved beyond just high-end trophy assets in office or retail sectors.The report argues that transparency,stability,income liquidity,and institutional acceptance should define what constitutes a core asset type today.This means that previously overlooked sectors such as manufactured housing,single-family rentals,may now meet the criteria for being considered “core.”
Given these changes,it is important for investors/managers to reevaluate their portfolio holdings every five years using updated data on performance metrics.”Labels shape investment decisions,” says Pattison,”and bad labels lead t o bad portfolios.” By critically examining how we measure/define our portfolios,we can create more optimized investment strategies for the entire commercial real estate industry.
