Austin and Dallas/Fort Worth are the top two markets for real estate development and investment identified in Emerging Trends in Real Estate® 2017, released recently by ULI and PwC. The Texas cities capped a top ten list dominated by 18-hour cities known for their vibrant economies, relative affordability, and authentic neighborhoods. Only two gateway cities, Los Angeles and San Francisco, cracked the top-ten markets to watch, indicating continued investor interest in secondary markets where job growth is strong and the quality of life high, such as Portland, Oregon; Nashville; and Charlotte.

While there was general agreement on Wednesday’s expert panel on the prospects of Austin—based on its high-wage, innovation economy and continued appeal for college grads—Matt Khourie, chief executive officer of Trammell Crow Company, urged caution for investors who lack a foothold already: not only is Austin a small market, but it slips easily into a state of overbuilding, he said. Tom Arnold, head of Americas real estate at the Abu Dhabi Investment Authority, said Austin may be “getting too hot”—though targeted investments could hold promise. Arnold also warned that immigration reform holds the key to Texas cities’ continued prosperity.

Other major trends identified in the report: rising construction costs caused by labor shortages and difficulty obtaining financing; the rise of “optionality,” or multiple uses—such as offices, pop-up retail, and event space—on the same piece of real estate; and growing housing affordability challenges for middle-income households. Learn more about Emerging Trends in Real Estate® 2017.