What it means
The term grew out of a simple contrast. A 24-hour city is a major global centre where shops, transport and nightlife run through the night, while an 18-hour city is active from early morning until late evening but quietens down afterwards.
Real estate investors and researchers use the label to sort markets by their stage of development. It gives a quick way to describe where a city sits in terms of size, price and maturity.
Gateway cities are expensive and heavily owned by large institutions, so investors seeking higher yields (annual income as a percentage of a property's price) often turn to the next tier down. What makes a city fit the description is a mix of features rather than a strict list.
These typically include a growing population of younger workers, a diverse job base, universities, a lively central district, an airport and affordable housing compared with the big gateway cities. A city that scores well on several of these features is more likely to be called an 18-hour city.
For businesses, the label signals a place where costs are lower than in the largest markets but talent and customers are still plentiful. A company might move its back office there to cut rent and salary costs, or open a regional store to reach a growing customer base.
Local governments in such cities often offer incentives to attract employers. The label has drawbacks.
It has no official definition, different researchers draw the line in different places, and an attractive city can quickly become expensive as capital and people flow in. Investors should therefore treat the label as a starting point and not a conclusion.
The real questions are local ones, such as the supply of new buildings, the strength of employers, the tax regime and how easily properties can be bought and sold. A careful buyer will also test the numbers with a downside case in which rents fall.
In practice
Real-world examples.
Example
A property fund compares office buildings in a global financial centre, where the income yield is 4%, with similar buildings in an 18-hour city yielding 6.5%. It decides to put $20,000,000 into the smaller market, accepting that selling the buildings later may take longer. The extra yield is the reward for taking that liquidity risk.
Example
A software company with 300 staff plans a second headquarters. It chooses an 18-hour city because rent is lower and graduates from local universities are available. The finance team estimates savings of $4,000,000 a year in occupancy and salary costs.
Example
A restaurant chain studies where to open new branches. It targets city districts that stay busy until late evening, which are common in 18-hour cities, and where rents are far below those in the largest markets. Its analysts forecast faster sales growth per branch than in the crowded major centres. The finance team also expects lower fit-out and staffing costs for each new site.
Case study
Seen in the real world.
Westbrook Realty is an illustrative, fictional investment firm that owned apartment blocks in a major gateway city. Rents were high, but purchase prices were so high that income yields had fallen to about 3.5%.
The firm's research team identified an 18-hour city nearby with growing employment and new university campuses. Apartment blocks there offered yields near 6%, and the firm bought two buildings costing $18,000,000 each.
Within three years a wave of new construction added supply, and rent growth slowed. Vacancy rose from 4% to 8%, so income growth fell short of the original plan. The illustrative lesson was that the 18-hour label identified a promising market, but the returns depended on local supply and demand rather than on the label itself.
Watch out
Common mistakes.
- Treating 18-hour city as an official classification, when it is an informal label that researchers define in different ways.
- Assuming that a lower price always means a better investment, when smaller markets can be harder to exit and more exposed to a single employer.
- Ignoring local supply, which can quickly erode the rent growth that attracted investors in the first place.
Questions
People also ask.
What is the difference between a 24-hour city and an 18-hour city?
A 24-hour city stays active all night and is usually a major global centre, while an 18-hour city is lively for most of the day and evening but quieter overnight.
Why do investors like 18-hour cities?
They often offer higher income yields and stronger growth prospects than expensive gateway cities, in return for less liquidity.
Does the term apply outside real estate?
It is mainly a real estate and urban planning term, although businesses also use it informally when choosing where to locate offices and stores.
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