When investing in these urban fringe neighborhoods, one of the most prominent challenges investors will face is their small footprint and a significant saturation point. An important question, Ryan says, is whether there is liquidity to keep going. And often, the carrying capacity and saturation point aren’t apparent early on.

Because institutional-grade development is expensive, the ability to scale the neighborhood will be crucial to determining long-term success, he says.

For example, one of the reasons Fulton Market in Chicago is gaining traction is its ability to grow vertically, like with the 45-story tower at 570 Fulton.

“As values go up, these neighborhoods become more attractive at a larger scale for redevelopment,” Ryan says. “That only happens when you hit a certain threshold, and the pricing works out. And then it precipitates a better return.”

Because of market volatility and how the risk of a single tenant pulling out of an anchor lease could disrupt an entire development, Ryan says investing in these markets have its fair share of risk. Similar risk occurs with sizing demand for higher-end and boutique hospitality and retail, where developers and tenants have to weigh the trade-offs of taking advantage of first-mover options against uncertain demand forecasts.

Still, Ryan remains bullish on the trend, saying, “Long term, this is where we are headed. There are enough investors confident in building out off-core urban neighborhoods. The lessons learned from the success of these locations in attracting residents, businesses and visitors will also inform the regeneration of traditional central business districts as they adjust to new ways of working, traveling and doing business.”

Download report