According to report by Boston-based AEW Capital Management, estimates prior to the 2000 U.S. Census count grossly underestimated the population of the country’s urban centers, such as New York and Chicago.

Doug Poutasse, AEW principal and chief investment strategist, explained that in the actual Census count, the New York metropolitan area in particular was found to have approximately 564,000 more residents than had been estimated — a difference of more than 6%. According to Poutasse, three factors contributed to the undercount: previous Census Bureau difficulties with the accuracy of its gathering methods; undercounting of immigrants undercounted; and low population growth in big cities in previous counts, especially in New York.

For real estate investment decisions, using the data is important because industry players use it to estimate potential tenants, shoppers and workers, Poutasse explained. "Top-down analysis based on even the most reliable third-party data has to be balanced against bottom-up, street level research from acquisition and asset management professionals," the report stated. "This is particularly important at finer levels of geographic detail where small changes in the absolute levels of demand can ‘make or break’ investment performance."

Despite the Sept. 11 terrorist attacks in New York and Washington, D.C., metropolitan areas will continue to grow, the AEW report predicts. "Sept. 11 is not going to change the movement to urban areas," Poutasse said. The movement to urban areas is being led by a surge of immigrants, who tend to feel comfortable moving to large cities such as New York, Miami, Chicago and Los Angeles. "The caveat is if immigration slows," Poutasse said. "It may pause for awhile." Gateway cities, locations with large foreign-born populations, are more dynamic than other cities and likely will produce stronger long-term demand for commercial real estate, the report stated.

Another factor is that cities have large numbers of people, which translates into human capital — for example, Atlanta, Washington, D.C., and San Francisco. Younger people in Generation X and Generation Y are moving to large cities also strengthen urban population growth. To a slightly lesser degree, Baby Boomers tired of long commutes are settling back into cities, Poutasse said.

The Census data points to strong real estate investment in the multifamily and retail sectors that caters to the urban working class, Poutasse said. He recommends providing Class-B apartment buildings, grocery-anchored shopping to traditional non-high income groups.

According to the report, cities will continue to be economically and politically important for a long time to come. Technology may change the type of activities in cities, but is overall strengthening, not weakening, most markets. "Understanding the industry mix is critical for investors assessing the relative market risks of one city over another," it continued. "For core Central Business District office buildings, look for markets with complex information exchange requirements, and be wary of markets with a large exposure to manufacturing."