While Emerging Trends in Real Estate* ratings improved for most markets from coast to coast, the chasm between top cities like Washington DC, New York and San Francisco and bottom dwellers—mostly the forlorn Midwest manufacturing havens like Detroit and Cleveland—widened in the recently-released 2011 survey. And more than half of surveyed markets couldn’t even muster “fair” ratings for investment prospects next year.
One interviewee summed up the outlook succinctly: “If you look market by market, you see some winners and more losers.”
The problems facing the majority of laggard markets should be no surprise, and is a continuation of an old story. Most places left off global commercial routes are treading water or failing. Hard hit factory centers were the first to fall off the global pathway grid decades ago when their jobs began shifting to cheaper overseas locations. Now service and brainpower businesses increasingly move away from interior markets without major international airports and concentrate in the coastal gateways.
So what’s the fate for Rust Belt and Midwest agricultural markets where unemployment rates stand well above the national average and companies continue to leave? The results of mid-term elections from many congressional districts in these areas suggest low taxes and less government are the answers, at least according to local voters who buy into Tea Party mantras. But cushy union factory jobs won’t come back when U.S.-based multinational corporations can get things built for a fraction of the cost overseas or as a secondary alternative in some right-to-work Sunbelt states. Unfortunately, lower taxes on diminished or vanishing incomes won’t help out anyone very much in these places. And government or quasi government-supported jobs maybe their only way out.
In fact, Pittsburgh may be the example for Cleveland, Buffalo, and Milwaukee to follow. Here’s a city that 50 years ago was an industrial juggernaut, home to more Fortune 500 headquarters than any other city except New York and Chicago. Today the city has half its former population, factory jobs have been replaced by medical center and university workers, and it rates as one of Forbes Magazine’s most livable cities. Real estate investors hardly view Pittsburgh has an attractive market (in the Emerging Trends survey it ranks in the bottom quintile between Providence and Cincinnati)—there’s little opportunity for development or rent growth. But lo and behold Pittsburgh also has some of the tightest vacancy rates in the country (around 10%), and local property owners can make a decent income return absent much chance for appreciation.
In the Era of Less, more markets should only hope to end up like Pittsburgh. Stagnant and tight with a modicum of brainpower employers beats the dismal alternatives any day. Cleveland must pin its hopes around the expanding Cleveland Clinic. Rochester and Syracuse come to realize local universities and colleges key their chances to stem further losses… But all those factory jobs aren’t coming back unless Americans are willing to compete at much lower compensation rates than in the past. And that has nothing to do with lower taxes and less government.
*Emerging Trends in Real Estate 2011, which I author, is published by PricewaterhouseCoopers and the Urban Land Institute
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
