They say that real estate is all about location, location, location. Investors looking for stable rent growth and steady appreciation often turn to gateway real estate markets.
However, sometimes the best opportunities for investing in gateway real estate markets are found in the smaller cities that make up these sprawling metropolitan areas rather than in the bigger cities themselves.
Key takeaways
- Gateway real estate markets are characterized by highly diversified economies, strong real estate demand, and high liquidity with properties selling faster and easier.
- Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D.C. are six gateway real estate markets in the U.S.
- Smaller gateway cities within each metro area often have more affordable homes and stronger rent growth than bigger cities in the gateway market.
What is a gateway real estate market?
Gateway real estate markets are made up of cities, urban regions, and metropolitan areas that many people consider the best places to invest. Demand for real estate is generally high, due to the perceived safety and stability of owning rental property in gateway markets.
According to the Global Gateway Cities report from the commercial real estate services and investment firm CBRE Group, Inc., gateway real estate markets are hubs of explosive growth with diverse, robust economies and vibrant live-work-play destinations.
Gateway real estate markets and cities are characterized by:
- World-class transpiration hubs networked into the global economy.
- Highly diversified economies with a variety of sectors and subsectors creating resilience to economic events.
- Strong demand for real estate due to long-term property value increases and rent growth.
- Downtowns and suburban areas with world-class retail, an extensive stock of real estate, and national and regional corporate headquarters.
- High liquidity with properties selling easier and faster due to strong demand.
- Desired destinations due in part to dynamic employment sectors including high-tech, fashion, and finance.
Gateway markets vs. gateway cities
Although the terms gateway real estate market and gateway city are often used interchangeably, there is a difference between the two. Gateway markets are the sum of the cities that make up the larger real estate market in the metropolitan area.
For example, Los Angeles is the second-largest gateway real estate market in the country, spanning nearly 34,000 square miles in the metro area and home to over 13 million people.
Over two dozen cities are located in the Los Angeles metro area, including Anaheim, Beverly Hills, Glendale, Newport Beach, Pasadena, Riverside, and Santa Monica. Investors looking for good rental property in gateway real estate markets frequently have plenty of options to choose from.
Pros and cons of gateway real estate market investing
Prices are often higher and potential returns lower in gateway cities due to investor demand and the relative stability of cash flows and property values.
Government regulation and taxes may be higher in gateway cities, leading to higher operating expenses and lower overall returns. Oftentimes, gateway cities are not thriving as they once did, due to neglect, a stagnant job market, or population loss.
However, real estate investors may still be able to find good opportunities by purchasing rental property in the smaller satellite cities located within the larger gateway real estate market.
Pros
- Home prices may be more affordable in outlying areas of a gateway market.
- Job and population growth of suburban areas within a gateway real estate market may help create demand for rental property.
- Gateway real estate cities may offer incentives for redevelopment and affordable housing.
Cons
- Lower real estate prices may persist for a longer period of time than expected.
- May be difficult to find rental property due to growing investor demand.
- Affordably-priced real estate in gateway cities may require repairs and maintenance to increase property value.
Gateway real estate markets stats and trends
There are 6 primary gateway real estate markets in the United States: Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D.C.
In this section, we’ll take a look at the characteristics of each primary city.
(Data cited below came from Census Reporter, Data USA, Realtor.com, Zillow, and Zumper as of July/August 2021, and growth statistics are year-over-year.)
Boston
- Population: 694,295
- Population growth: -0.23%
- Employment growth: 6.31%
- Zillow Home Value Index: $697,672
- Home value growth: 7.2%
- Median listing price: $799,000
- Median sales price: $725,000
- Median rent 3-bedroom home: $3,000
- Rent growth: -2%
- Renter-occupied households: 65%
- Per capita income: $48,978
- Median household income: $79,018
- Median age: 32.6
Chicago
- Population: 2,693,959
- Population growth: -0.45%
- Employment growth: 0.89%
- Zillow Home Value Index: $318,612
- Home value growth: 10.2%
- Median listing price: $349,000
- Median sales price: $335,000
- Median rent 3-bedroom home: $2,200
- Rent growth: 5%
- Renter-occupied households: 56%
- Per capita income: $40,277
- Median household income: $61,811
- Median age: 35.2
Los Angeles
- Population: 3,979,537
- Population growth: -0.27%
- Employment growth: 0.47%
- Zillow Home Value Index: $902,989
- Home value growth: 18.5%
- Median listing price: $950,000
- Median sales price: $910,000
- Median rent 3-bedroom home: $4,300
- Rent growth: 8%
- Renter-occupied households: 63%
- Per capita income: $37,779
- Median household income: $67,418
- Median age: 35.9
New York
- Population: 8,336,817
- Population growth: -0.74%
- Employment growth: 0.78%
- Zillow Home Value Index: $722,787
- Home value growth: 4.5%
- Median listing price: $869,000
- Median sales price: $800,000
- Median rent 3-bedroom home: $3,114
- Rent growth: -6%
- Renter-occupied households: 68%
- Per capita income: $43,046
- Median household income: $69,407
- Median age: 37.2
San Francisco
- Population: 881,549
- Population growth: -0.20%
- Employment growth: -0.45%
- Zillow Home Value Index: $1,504,311
- Home value growth: 6.3%
- Median listing price: $1,300,000
- Median sales price: $1,500,000
- Median rent 3-bedroom home: $4,800
- Rent growth: 0%
- Renter-occupied households: 63%
- Per capita income: $75,084
- Median household income: $123,859
- Median age: 38.2
Washington, D.C.
- Population: 705,749
- Population growth: -0.47%
- Employment growth: 1.80%
- Zillow Home Value Index: $698,019
- Home value growth: 7.2%
- Median listing price: $600,000
- Median sales price: $674,000
- Median rent 3-bedroom home: $3,500
- Rent growth: 0%
- Renter-occupied households: 59%
- Per capita income: $59,808
- Median household income: $92,266
- Median age: 34.3
Final thoughts
Gateway real estate markets in the U.S. are known around the world for their diverse economies, vibrant live-work-play destinations, and safe and stable real estate. Sometimes the best investments to be found are in smaller gateway cities within the larger metropolitan areas. Real estate prices tend to be more affordable, rent growth stronger, with appreciating home values.
