Master-Planned Communities

Lower Risk, Higher Reward?

Master-planned communities (MPCs) attract investors and developers seeking strong demographics, higher rents and lower risk in markets across the United States. Do MPC fundamentals support this investment strategy?

To answer this, Cushman & Wakefield analyzed four high-performing MPCs in Arizona, Colorado, Texas and Florida. In our analysis, we found that household incomes, commercial rents and educational attainment are higher within MPCs than in nearby neighborhoods or across the broader Metropolitan Statistical Area (MSA). While MPCs typically attract a higher degree of multifamily and retail investment, they also attract mixed-use, healthcare and office development.

Multifamily

Multifamily properties in the four MPCs command higher rents and, in most cases, greater occupancy than surrounding areas and their MSAs. For example, Eastmark in Phoenix boasts average per-unit effective rents that are 19% higher than those in Mesa, Chandler and Gilbert. Its third-quarter vacancy rate of 5.7% is well below Mesa, Gilbert and Chandler’s 8.9%, and even further below the Phoenix MSA’s 11.1%. Highlands Ranch in Denver and The Woodlands in Houston also followed the trend of higher rents and lower vacancy.

In Florida, Lakewood Ranch posted higher rental rates than the MSA and surrounding area but does not currently have lower vacancy rates. It’s third-quarter vacancy rate of 8.6% is 100 basis points (bps) above the surrounding area, likely due to elevated multifamily development activity compared to other MPCs analyzed. With Lakewood Ranch’s smaller market size and limited existing multifamily inventory, new unit deliveries have a significant impact on vacancy in the short term. However, vacancy rates are expected to compress as multifamily development tapers off. For context, Lakewood Ranch delivered roughly 1,500 multifamily units over the past four quarters, compared to 189 in The Woodlands and none in Eastmark. 

Retail

Like multifamily properties, retail developments within MPCs achieve significantly higher rents and often lower vacancy rates than surrounding areas. The Highlands Ranch MPC, with 2.9 million square feet (msf) of retail space, has a tight third-quarter vacancy rate of 2.4%, compared to 4.4% in the surrounding area and 3.5% in the Denver MSA.  Similarly, Lakewood Ranch, with 2.0 msf of retail inventory, has maintained retail vacancy rates below 1.0% for the past four quarters, while the surrounding area and MSA recorded vacancy rates of 1.5% and 3.6%, respectively.

On average, retail rental rates in MPCs are 24% higher than surrounding areas and 31% higher than the MSA. At 44%, Highlands Ranch has the highest premium when compared to the MSA, while Lakewood Ranch—at 35%—has the highest premium compared to the surrounding areas.

Demographics

MPCs with significant retail offerings often attract premium brands due to stronger community demographics, such as higher education levels, larger households and higher incomes.  Affluent residents, with higher average household income and greater disposable income, make MPCs particularly attractive to investors, developers and retail tenants. The Woodlands, known for its concentration of high-end retail, has a median household income that is 72% higher than the Houston MSA and an average household income that is 63% higher. In Arizona, Eastmark’s median household income is 57% higher than the surrounding area and 75% higher than Phoenix. On average, these four MPCs have median household incomes that are 38% above the surrounding area and 63% higher than their MSAs.

Higher rates of educational attainment are likely a key factor for higher household incomes in MPCs. Residents over the age of 25 in MPCs are more likely to have completed a bachelor’s degree. On average, 63% of residents in the four MPCs have completed a bachelor’s degree, compared to 49% in the surrounding area and 41% in their MSAs. 

MPCs present a compelling opportunity for real estate investors and developers due to robust demographics, resilient market dynamics and potential for higher returns. Enhanced household incomes, higher educational attainment and favorable consumer profiles make MPCs attractive to premium tenants and affluent residents, ultimately supporting higher rental rates and often lower vacancy rates compared to surrounding areas. Additionally, the diversified property types and amenities within MPCs, coupled with their performance advantage over surrounding areas, offers investors and developers a favorable balance of lower risk and greater reward potential.

^{1 Retail rents for Eastmark were unavailable so it is unknown whether or not this trend is prevalent there.}