While I do not believe that brick and mortar retail will disappear, it was becoming of decreasing strength in many, perhaps even most, of our downtowns before the Covid19 crisis appeared. Their leaders needed to recognize that their district’s vitality was increasingly dependent on the firms and nonprofits engaged in its central social district functions such as restaurants, bars, public spaces, theaters, museums, cinemas, senior and childcare centers, houses of worship, etc. I also argued strongly that downtown leaders should stop being snobs and looking down at pamper niche operations such as hair and nail salons, gyms, martial arts studios, spas, yoga and Pilates studios, dance studios because they brought in shoppers with discretionary dollars to spend and their shop windows were usually neither inert nor boring.1 Looking to the post Covid19 future, the recovery of the vast majority of our downtowns also will depend on the resurgence of these types of operations, not just the independent and/or chain store retailers. Consequently, this article does not focus on just small retailers.
The Pre-Crisis Situation
In our biggest and strongest downtowns, these small operations have been disappearing from their main storefront commercial corridors for some time now as more chains entered and rents rose at a gallop. And it was not just the small retailers who were disappearing. Some, mostly small eateries, have in declining numbers hung on in side street locations.
Pre-crisis, in many, perhaps most, smaller downtowns, finding tenants for vacant storefronts was already a prime concern. Since the Great Recession, many downtown revitalization observers have noted a strong tendency for vacant retail spaces to be filled by personal service operations and/or FIRE industry tenants. Banks, for example, for some years were taking the prime large storefronts at districts’ key intersections. In one suburban downtown, they sat at three of the corners of such an intersection.
Acceptable downtown vacancy rates rose in the pre-crisis years to a level, about 10%, that in years past would have been treated as a sign that a district is in serious trouble.
Compounding the situation was
The decline in small business startups.
The relatively short lives of most of these small firms.
For decades these small businesses have been fighting waves of strong new competitors that have appeared one after the other such as national retail chains, regional shopping malls, big box stores, and online merchants.
This prior situation has not been erased by the current crisis. Instead, it probably will serves as a legacy layer of conditions that will influence the recovery of small operators from the Covid19 crisis. These old challenges are unlikely to have gone away during the Covid19 crisis, but they may have mutated.
Their Survival and Adaptation During the Crisis.
Since we are still in this crisis, it is impossible to accurately assess how many of the small businesses that tenant most of our storefronts in the vast majority of our downtowns will survive. That said, there are enough well established facts that suggest the number of failed/closed small firms will be very high. For example, as this chart above from a recent study of about 600,000 small businesses by the Chase Institute shows, depending on their industry, small firms are likely to have on hand only enough cash to cover their cash expenditures for between 16 and 47 days, with the median being 27 buffer days.2 Twenty five percent have less than 13 cash buffer days. Notably, two downtown strategists’ favorites, restaurants at 16 cash buffer days, and retailers at 19, are at the lower end. The crisis induced disappearance of customer traffic and sales revenues turned this weakness into a mortal threat.
Parts of the $2 trillion CARES Act passed by Congress is aimed at addressing this problem. However, numerous problems have emerged with its implementation. To maintain focus, they will not be detailed here. However, lots of the small firms who need this survival money most have not been funded, especially those who are “under banked” and in minority areas. Success rates for obtaining these funds have also varied significantly by state.
Under its $349 billion Paycheck Protection Program administered by the SBA, overwhelming demand has meant that funds were quickly depleted even though a loan maximum of $15,000 was imposed. The table above shows that the ability of these loans to help small firms survive depends not only on the amount of the loan, but the industry the firm is in. It should be noted that during this crisis with many non-essential small businesses closed and others having limited operations, their cash outflow needs may be lower, so these loan amounts could support them for additional days. However, even with that in mind, it should be clear that if a full economic recovery will take a year or longer to achieve, these loans will be insufficient to keep many of these small businesses afloat. They need to again have sales revenues.
The situation among the department stores is equally stressed, as noted by a recent article in Retail Dive:
“Cowen analysts said department stores have about five to eight months of liquidity before a cash crunch becomes a risk factor. J.C. Penney has about eight months of available cash, Macy’s has about four and a half months and Kohl’s has about five months, according to Cowen’s analysis. The analysts previously pegged Nordstrom at about seven months but have since revised their forecast to one year.” 3
For small merchants to have a good chance of achieving adequate sales revenues the following conditions must be met:
A sufficient amount of consumer demand, with allied spending power, must return. With very large numbers of unemployed and large declines in the values of 401ks and stocks, demand may not return quickly. Also, returning demand can be expected to vary with the wealth in a downtown’s trade area.
Supply chain problems must be adequately healed to have adequate selections and timely access to inventory. Much of the merchandise our shops now sell are produced offshore and Covid19 is an international crisis impeding production and transport. We may not learn about the true extent of our supply chain problems until existing in-country inventories are depleted.
These small firms will still have to deal with many of their old pre-crisis problems, though some may have been ameliorated for the survivors. Large scale closings of small merchants will likely result in much higher storefront vacancy rates, increasing their bargaining position with landlords. That is likely to create strong pressures for lower rents for tenants and mortgage payment problems for landlords. The overall quality of the surviving small merchants, though, might be much higher because they were the best and fittest operators. However, finding new tenants and high vacancy rates may be larger problems than ever for their downtown’s leaders and EDOs. Amazon, Costco, Walmart, Target et al are doing record business, a lot of it for online groceries, but their deliveries have become very problematic and uncertain. As a result, they may have lost boat loads of customer good will. Getting a food delivery time from Amazon Fresh or Costco/Instacart, for example, has become like winning the lottery. But, by the same token, if these giants right their ships, they may become even more powerful than ever because so many more consumers relied on them during the crisis, and so many more of them ordered online and learned how easy online shopping can be when the systems are not stressed beyond their capacities. Keep in mind that grocery sales have long been thought to be very resistant to being captured by online retailers, yet during this crisis a huge proportion of America’s households become dependent on them. We fall off our bikes often when we are learning to ride them.
Small firms will need to change the way they operate to accommodate the need for social distancing among customers and employees, to improve sanitation as the new offices will do, and to learn how to deal with more customers who are located outside of their stores and/or who care a lot about convenience and speed of service.
On this last point of adapting to the new conditions, I’ve been noting over the recent years a growing trend of smaller merchants to use the internet, and the younger ones are often quite adept at it. The most successful of them do so as part of an omnichannel marketing approach that ties their online operations with their brick and mortar stores, backdoor marketing to other businesses, and in-person marketing efforts at trade shows and other similar events. From some very interesting articles I’ve recently read that will appear in the June issue of The American Downtown Revitalization Review (The ADRR), it seems that during the current crisis many small town merchants have relied on the internet to maintain a revenue stream, with many of them adopting the BOPIS strategy – shoppers buy online and pickup in the store or at its curbside – that lots of large chains are using.4 The critical question that has yet to be answered is: are these revenues streams large enough to keep them afloat, with or without CARES Act loans?
From those articles as well as from visiting the website of Center City in Philadelphia, I’ve noticed that many pamper niche operations, especially those that involve some form of teaching have taken to the internet. Included are yoga, Pilates, dance, martial arts, and meditation studios.5 These operations also have relatively low daily cash outflows and need to capture relatively low market shares to stay solvent. They also usually do not require prime locations. Nor do they need large inventories of merchandise on hand, so they can pay a higher percentage of their annual revenues for space costs. Consequently, they may be a good group for downtown tenant recruitment efforts to target during the earlier stages of the economic recovery.
However, being able to adapt to the new conditions will also mean changes in the ways employees and shoppers use these stores so that they have cleaner air and surfaces and support any necessary social distancing. Large retail chains are already contemplating serious changes such as contactless payments and curbside deliveries, one -way and wider aisles, better air filtration, more frequent and more thorough cleaning of interior surfaces, salespeople wearing masks and gloves, and limiting access to a specific number of shoppers at any one time. Many of these steps can be quite costly for either the landlord and/or the retailer. Small merchants have far fewer resources, so two questions come to mind: 1) can they afford similar changes, and 2) if not, will consumers still feel sufficiently safe to patronize their operations? The big retailers will hire professional firms such as Gensler to help them. Will the small merchants know who to hire, and will they be able to afford them? For many downtown EDOs the needs of their small merchants to reconfigure how their shops operate will pose challenges similar to their trying to help small merchants improve their storefront’s facade, but on an even more complex scale.
2) Diana Farrell and Chris Wheat. “Cash is King: Flows, Balances, and Buffer Days: Evidence from 600,000 Small Businesses.” The JPMorgan Chase Institute, 2020.
By William F. Ryan, University of Wisconsin – Madison/Extension and N. David Milder, DANTH, Inc.
Introduction
Within the downtown revitalization community a broad consensus has formed around the maxim that the greater the number of people who live in our downtowns, the more likely they are to prosper. These residents help to spark the “activation” of the district, providing the visible evidence of people engaging in a variety of activities, and nurturing the perceived sense of vitality among visitors that makes the area a magnetic place to be. A number of factors can impact this downtown population growth. The real estate market certainly is one. Job growth, especially of creative class employees, is another. One that has gained notice, of late, is the number of people who live and work in their districts, and the live-work environments that emerge to both support them and reflect their attitudes and behaviors.
Most of the attention paid to the live-work engine has focused on our largest cities. After a brief look at those downtowns, this article will look in greater depth at the numbers, behaviors and impacts of live-workers on suburban and independent cities with populations between 25,000 and 75,000 .1 Suburban cities are located in a metro area in which there is a large center city. They usually serve more as bedroom and leisure communities than employment centers. Independent cities are more geographically isolated and may be the cores of a small metropolitan/micropolitan area. They serve as employment and commercial centers as well as bedroom and leisure communities. They are often also government centers (e.g., county seats). They are more multi-functional than the suburban downtowns.
Live-work Environments as a Growth Engine in Our Largest Employment Nodes.
Job growth alone often has had mixed impacts on a downtown’s vitality and attractiveness in our larger cities. In the 1980s, for example, office development – with its large numbers of white collar workers — was seen as THE downtown redevelopment strategy, but it produced a large number of disappointing projects in dull and perceived unsafe downtowns. Many of them had to be “redone.”2 In office dominated districts, there were too many fortress-like office towers, and they lacked the multifunctionality and pedestrian activity that are critical for downtown vibrancy. Though somewhat active weekdays from about 11:00 a.m. to about 2:00 p.m., the downtowns were deader than doornails at other times. There were too few people around once the offices closed.
Since the early 2000s, and especially after a major paper by Eugenie Birch in 2005, observers noted that our larger downtowns in the 1990s had been attracting significantly more residents.3 In the years since, housing development has become increasingly seen as the secret revitalization sauce for a large number of downtowns, including those in numerous suburbs, and almost all of our largest cities. These new residents help activate their downtowns after 5:00 pm on weekdays and over the entire weekend.
However, not all downtowns experience household growth. For example, Birch found that about 27% of the downtowns she studied had declining numbers of households.
Downtown housing growth and district activation is thought to be strongest when downtowns have attracted large numbers of “live-workers. They are there after 5:00 p.m. and on weekends. They don’t spend much time in vehicles commuting, but often will walk to and from work, or make short trips on public transit. For example, in several zip codes in Manhattan over 50% of the residents who are in the labor force walk to work. The live-workers very often are also creatives with high salaries.
In a seminal monograph published in 2017, Paul Levy and Lauren Gilchrist researched the percentage of live-workers (those who both live and work in a district) in 231 major employment centers located in the nation’s 150 largest cities and within a one-mile radius that surrounds each of these centers. 4 Their work is important because it:
Demonstrates how downtowns are intractably inter-related with their immediately surrounding neighborhoods.
Showed that a significant number of the downtowns in the nation had very significant levels of live-workers of 40.7% to 55.9%, especially those in superstar cities. (See the above table). The authors did not overtly make that claim, but, several of the high performing downtowns they listed are what Aaron Renn has termed as superstar cities: “These “superstar cities”—New York, Los Angeles, the San Francisco Bay Area, Boston, Washington, and Seattle—are among America’s largest, most productive urban regions. They have well-above-average per-capita GDP and incomes and serve as the home bases of high-value sectors like finance (New York) and high tech (San Francisco)”. 5
However, the vast majority of our largest employment nodes had considerably lower levels of live-workers: 60% had fewer than 20% of their workforce being live-workers, with 42% in the 10%-19% range. 6
Live-workers in Independent and Suburban Cities.
The authors utilized a data set compiled by William Ryan, of the University of Wisconsin -Madison/Extension , and Prof. Michael Burayidi, of Ball State University, that covers 259 downtowns in cities with populations between 25,000 and 75,000 in Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin. The dataset contained valuable information about the sizes of these downtown populations and their growth or decline. Using the Census Bureau’s On-the-Map online database, two variables were added to the original dataset: the number of people who both lived and worked in the city (N Live-workers in City) and the percentage of people participating the nation’s workforce and living in the city who also worked there (% Live-workers in City). The limitation of these added data is that they are characteristics of the whole city and not just the downtown and its immediately surrounding areas. The reasoning for using these data is that the two live-work variables can be seen as indicators of a proclivity to live-work within a city and the analysis can be framed by looking at the impact of that proclivity on the size of these downtown populations and rates of population growth/decline.
A closer look at downtown live-work situations is also presented below. However, because of resource constraints, it is confined to 10 cities in this population range. Five are independents and five are suburban. Several of these downtowns are not in the Ryan-Burayidi dataset.
Downtown Population Growth and Decline. These downtowns do not appear to be having the impressive level of population growth that is to be found in our larger cities, and this is especially the case for the independent cities that are not part of a large metro area.
The suburbs averaged downtown populations that were about as large, 3,089, as the independents, 3,294, but had a slightly larger maximum and a lower minimum. The suburban downtowns captured only a slightly lower proportion of their city’s population, with a median of 7.6%, than the independents did, with a median of 9.2%. Their highest proportions were close, too, 28.4% among the suburbs and 27.3% among the independents.
However, the suburban downtowns had an average growth rate between 2010 and 2018 estimated at 5% compared to just 0.53% for the independents. Both growth rates were far below the two digit growth rates many of our larger downtowns have been experiencing. Unexpected is the large percentage of these downtowns with negative growth rates, 36%. One might think that we were back in the 1960s or 1970s. In this regard again, the comparative strength of the suburbs stood out: while 31% of the suburban cities were dealing with declines in their downtown’s population, 46% of the independents experienced such decline. The suburbs also showed much more variation in their growth, with a low of -57.2% and a high of 140.2% compared to the -11.6% and 17.9% for the independent cities.
Many of these downtowns could benefit from a strategy that can increase their downtown populations.
An important factor in the different downtown population growth rates of the suburban and independent cities is their current economic growth potentials. Recent studies by Brookings and AEI have noted that economic development these days is stronger in communities that are attached, in a metro area, to a large city that has a population above 250,000.7 Many of the suburban cities in the Ryan- Burayidi dataset are attached to such cities (e.g., Chicago, Minneapolis, Columbus). In contrast, the independents, all under 75,000, probably are not, and instead are themselves the core cities of smaller and weaker metro areas.
Levels of Citywide Live-Work. Again, because of their very natures, these two types of cities display quite different levels of live-workers at the city level. In the more geographically and economically isolated independent cities, half of them have over 33% of their residents who also work in the city, with 10% having between about 54.7% to 67.7% of their residents being live-workers. Those numbers, though at the city level, compare favorably with the percentages of liveworkers in and near our big city downtowns identified by Levy & Gilchrist. In contrast, the suburbs, being integrated into an economic region with lots of jobs, have many fewer live-workers at the city level. Half of the suburban cities have less than about 9.9% of their residents also working in their cities, with the highest percentage being 36%, about half that of the independent cities.
A Pearson Correlation analysis showed that both live-work variables have very weak relationships with downtown population size in both independent and suburban communities, with no r exceeding .166 or being statistically significant. These findings support the conclusion that the proclivity for live-working in both types of cities probably has little impact on the downtown’s population size. People who live close to where they work are not clustered in and near their downtowns in these 259 cities.
However, there was a positive r of .249 significant at the .05 level between the number of live-workers in the independent cities and their downtowns’ rates of growth/decline. This does suggest that the proclivity to live-working can have some positive association with downtown population growth in these communities when they are growing. That may point to the additional availability of new downtown housing units that facilitate live-working.
A Case Study of a Creatives’ Suburb. Looking at the nature of the live-work environment in one of the suburban cities in our dataset, Dublin, OH, provides an interesting case study. Dublin is the nation’s 13th strongest creative class city, according to Richard Florida. 8 For a suburb (of Columbus) , it also has a large number of people who hold jobs in the city, about 42,249 in 2017. (See the above table). Given the propensity for creatives to prefer hip urban areas, one might expect a high number of live-workers in this downtown. However, the number of live-workers within a half-mile of the downtown’s center point in 2017 is a miniscule five. In 2017 live-workers represented just 0.18% of the downtown’s workforce and 1.2% of its residents who are in the labor force. They also represented just 0.48% of the downtown’s 1,024 residents (includes those not in the labor force). Those five live-workers accounted for 0.2% of the 3,184 live-workers in the whole city. Live-workers seem, if anything, to be avoiding the downtown.
The number of people who are in the labor force and live in the 0.5 mile had dropped slightly, by 19, from 2007. Most notably, the absolute numbers of live-workers and their percentages of the relevant area’s workforce and residents increased with their distance from the downtown. Moreover, the number of live-workers in the city increased by 408, while the increase within the 1-mile ring was just 44, or about 9% of the city’s total increase. This is consistent with the hypothesis that the local residents and workers have little interest in living in urbanized environments, or at least the type offered in downtown Dublin. The downtown might not be seen as hip. It is very small. This should not be surprising in a town that is such a strong exemplar of a successful suburban city. Here is how Google describes the city:
“Dublin Ohio is a long standing community and is probably best known for being the home of Jack Nicklaus’ Country Club at Muirfield Village”.
“Dublin is in Franklin County and is one of the best places to live in Ohio. Living in Dublin offers residents a sparse suburban feel and most residents own their homes (italics added). In Dublin there are a lot of bars, restaurants, coffee shops, and parks. … The public schools in Dublin are highly rated.” 9
In 2014, a survey by Trulia found that 53% of the 2,008 respondents lived in a suburb and that about 93% of them preferred living in suburban locations. 10 That suggests a high probability that a strong majority of the residents in towns like Dublin might not be looking to live in a dense downtown location in a multi-unit structure. The situation in Dublin signals that many creatives may be among them.
Dublin recently undertook a massive new project, the Bridge District to strengthen the downtown. It will be interesting in a few years to see how that changes how many people live in its downtown and how many are live-workers. 11
An In-Depth Look At Working Populations, Jobs and Live-Workers in 10 Selected Downtowns.
The authors selected 10 downtowns they have visited and researched with populations in the 25,000 to 75,000 range (with the exception of Morristown, NJ) to look at their live-work rates, if these rates grew or declined between 2007 -2017, the size of their working populations (residents in the labor force), their number of jobs and how they also may have changed between 2007-2017. The data were downloaded from the Census Bureau’s On-the-Map online database using 0.5mile and 1.0 mile radii centered on the key intersection in each district. The assembled data are displayed in the two tables presented below. The analysis of such a small sample has obvious statistical limitations. In the natural sciences, e.g., astronomy, however, analogs are often treated as outliers that bring an existing theory or paradigm into question or suggests a need for their amendment. Our findings are presented as being directional, not conclusive, and sometimes as signaling that attention should be paid to them because they do not fit with the accepted professional wisdom.
For the downtowns in the cities in the 25,000 to 75,000 population range, the 0.5 mile ring will cover most or all of their district. It also represents an area that the average pedestrian can cover in about a 10-minute walk from the downtown’s center. It is also often used to define the boundaries of transit-oriented development districts. The 1 mile ring defines and area that is about 4.13 times larger than that of the .5 mile ring, and the average pedestrian would have to walk for about 20 minutes to go from the downtown’s center to the ring’s boundary. Such a walk is still doable for many, but its difficulty is sufficient to probably make others use some form of transportation or simply not make the trip. The .5 mile to 1 mile donut probably represents the nearby neighborhoods that are so crucial to the success of our downtowns.
Residents in the Labor Force. As can be seen in the above table, the number of people who live in the 1-mile ring and are in the labor force (labor force pop), for the most part, is far from negligible. (Note, they do not necessarily work in or near the downtown). The most are in two suburbs, Cranford, 8,817, and Morristown, 8,728, both in NJ. However, the average for the 5 independent downtowns’ 1 mile rings, 6,566, is about 10% higher than that of the five suburban cities, 5,977.
A far larger disparity appears when we look at the data for .5 mile rings: the average number of ring residents who are in the labor force is 1,776 for the five suburban city downtowns, but 307% larger at 5,455 for the independent city downtowns. This probably reflects key differences in their basic characteristics: the independents probably are larger and have traditional, more densely developed downtowns, with more housing units and more jobs, while the suburban downtowns are less densely developed and less multi-functional. However, within the suburban group, Cranford, Morristown and Downers Grove all have many more of these residents than the other two downtowns. Notably all three had completed a number of downtown housing projects in the 2007 to 2017 timeframe. Also, Morristown is both a suburb in the NY-NJ-CT Metropolitan Region, and a county seat and regional commercial center. Notably, it and Garden City have more people working in the city than residents. Starting out as bedroom communities has not stopped them from also becoming office employment centers.
The table also provides ring ratio values that are created by dividing a variable’s value for the 1 mile ring by its value for the .5 mile ring. This sheds light on where the weight of the geographic distribution is between the two rings. Here we are looking at the ring ratio for residents who are in the labor force. A value of 4.1 would indicate an evenly balanced distribution. Values below 4.1 mean the distribution is weighted to the .5 mile ring, and the lower the ratio’s value, the more heavily the distribution is weighted. Conversely, values above 4.1 indicate the degree the distribution is weighted to the 1 mile ring. While the ring ratio for the suburban cities, 3.4, and the independents, 1.2, indicate the weight of the distribution is toward the downtown, it is much stronger for the independent downtowns.
Live-Workers. When it comes to live-workers, the differences between the independent and suburban cities are even more striking. In the .5 mile ring the suburbs range between an unimpressive 5 and 216 live-workers, with an average of 80. On average, live-workers account for just 4.5% of the residents in that ring who are in the labor force. If we look at the suburbs’ 1 mile rings, the numbers rise, but they still are relatively small. Their live-workers range between 169 and 1,146,, with an average of 521. The live- workers in that ring, on average, represent just 8.7% of its residents who are in the labor force. These findings are consistent with the conclusion that the vast majority of the people who live in and near suburban downtowns do not do so because their jobs are also there, though some may be employed elsewhere in their cities. Other factors are leading these residents to select residences in and near their suburban downtowns. Such factors might include the convenience, transportation assets (e.g., commuter rail), and the attractive central social district functions these downtowns offer.
Live-workers have a stronger presence in the independent cities, especially in the 1-mile ring around their downtown’s central location. The range from 181 to 328 in the .5 mile ring, with and average of 231 and from 959 to 1,459 in the 1 mile ring, with and average of 1,212. On average the live workers are 7.7% of the residents in the .5 mile ring who are in the labor force , but 19.9% of those residents in the 1 mile ring. Moreover, Laramie and Rutland have much more impressive levels of live workers, 39.5% and 29.3% respectively. These are levels comparable to large numbers of our largest downtowns. One explanatory hypothesis is that live-working is likely to flourish in the core cities of a metro area, be it large or small, but not in suburban cities.
The ring ratio of suburban cities for the live-workers is 6.5, and for the independents it’s 5,2, indicating their distributions are weighted significantly toward the 1 mile ring, in the .5 mile to 1 mile donuts where residents are likely to find walking to the town’s center not really easy and liable to need/use some transport to get there. This also supports the conclusion that while live-workers may be great for downtown activation and success, downtowns often may not be where people who want to live-work will decide to reside. Being near, but not in the downtown may allow them to enjoy both the assets of the downtown and a suburban home and lifestyle. This may be a reflection of the local cultural where single family residences and traveling by car still are highly valued. While this may be more apparent in suburban cities, these cultural preferences can also be found the independent cities that are so often cities in the midst of a rural area.
Influence of Jobs. Levy and Gilchrist argue that job growth and density are major reasons why live-work levels get very high in our most successful downtowns.
Looking at suburban cities in the bottom half of the above table, one might note that three of them have relatively large numbers of jobs in their 1 mile rings: Garden City 31,309, Morristown 23,431, and Dublin 16,529. They are in the large NY-NJ and Columbus metro areas. Indeed, the five suburban 1-mile rings average 16,890 jobs In contrast, the average job count in the 1-mile rings of the independent cities is just 6,566, with the highest being Rutland’s 7,659.
However, when we look at the percentage of jobs being held by live-workers in both the .5 and 1 mile rings, the averages for the suburban cities are just 1.5% and 3.1% respectively. Despite their high job numbers, the percentages of Garden City, Morristown and Dublin in the 1 mile ring are just 1.5%, 4.9% and 1.0% respectively. The connection between jobs and the emergence of a large number of live-workers seems to be barely existent in these suburban communities, even in those that are prosperous and have lots of jobs.
Live-workers have a more significant presence in the independent cities, especially in their 1-mile rings. The average percentage of jobs held by live-workers in the .5 mile rings is 12.2% and 19.1% in the one mile rings.
However, many of these cities have been struggling. As noted above, 46% of the 91 midwestern independent cities in the Ryan-Burayidi database had declining downtown populations. Auburn, Laramie and Rutland had job losses in their .5 mile ring of -25.6%, -17.8% and -17.8% respectively between 2007 and 2017 and declines in the number of live-workers of -25.6%, -24.9% and -24.2% respectively (see table below). Still, in all five independent cities there is total agreement in all 10 rings between the directions of job growth/decline and live-work growth/decline. That certainly signals a meaningful association between the two.
The opposite is the case with the suburban cities. In seven of their 10 rings there is disagreement in the directions of job growth/ decline and live-working.
Also worthy of note is that between 2007 and 1017 the number of live-workers declined in six of the independent city ring areas and in eight of the suburban ring areas. While live-work may have been growing in our larger cities, these 10 cities suggest that it may have been struggling in our medium sized cities.
The ring ratios for the suburban cities, 3.2, and the independents, 2.7, both indicate the geographic weighting of jobs is toward the downtown. This is again the opposite direction of the live-worker ring ratios. Jobs may be going to the downtown core, but live workers are going to the close-in neighborhoods surrounding the downtown or at its periphery.
Conclusions and Implications
Many of These Downtowns Are Struggling. This is strongly evidenced by the analysis of the 259 cities in the Midwest with populations between 25,000 to 75,000. Many of their downtown populations are declining, not growing. The problem is 48% greater in the independent cities than in the suburban cities that are often attached to fairly large and more prosperous metro areas. That Laramie and Rutland are also having downtown problems suggests that such weakness is not confined to the Midwest, but probably national in scope.
The success of our superstar cities and downtowns should not cloud our awareness of the challenges many of our other downtowns are still facing.
That Said, Their Downtown Populations Are Not Insignificant. The average downtown populations of the 91 independent cities, 3,294, and the 168 suburban cities, 3,089, are similar. Downtown populations of that size can have over $150 million in total annual consumer spending. If they just make one trip daily outside their homes that totals over 6,000 potential in-out pedestrian trips. Those are not negligible numbers.
Live-Working in These Cities Is Struggling, Too. While live-work may have been growing in our larger cities, in the 10 cities given a close look in this study, the numbers of live-workers declined between 2007 and 2017 in all of them. In the suburban downtowns live-work was not significant to begin with. That suggests live-work may have limited potential in many suburban downtowns and that it is struggling in a large number of our medium-sized independent cities nationally.
The Job Growth/Decline – Live-Work Growth/Decline Connection Does Not Work in Suburban Downtowns. Even when they have tens of thousands of jobs, the suburban .5 and 1 mile rings have very low percentages of live-workers. Conversely, the independent cities, that are often the core cities of small metro areas and have denser and more multi-functional downtowns than the suburban cities, can have significant levels of live-workers. In them, the connection between jobs and live-workers seems to be meaningful. However, the data on these five independents indicate that this can be a double-edged sword. When jobs grow, so can the live-workers, but, when jobs decline, so will the number of live-workers, and many of these downtowns are in stressed regional economies. One explanatory hypothesis is that live-working is likely to flourish in the core cities of a metro area, be it large or small, but not in suburban cities.
Is Job Growth Really the Primary Engine of Downtown Population Growth? The average downtown populations of the 91 independent cities and the 168 suburban cities are similar, but they differ in what attracts these residents. While proximity to jobs might draw a significant number of residents to locate in independent city downtowns, that is not the case with the suburban downtowns. Indeed, even most of the residents in the independent downtowns probably are not drawn there by the proximity to their jobs. If that holds nationally, then the argument for jobs being a primary engine of downtown population growth needs to be amended. Moreover, the reverse commuters in our superstar cities, such as those riding Google buses from their San Francisco homes to their Mountainview jobs, suggest national applicability.
The question then becomes, what other factors can be attracting downtown residents? Since our data did not cover this question, we can only hypothesize based on the accepted conventional wisdom in the downtown revitalization field the following:
The downtown’s multi-functionality, that there are so many diverse needs and wants that can be met in a downtown.
The attraction of the downtown’s central social district assets: its housing, restaurants, bars, public spaces, cultural and entertainment venues, senior and childcare centers, places of worship, pamper niche venues, etc.
The convenience of being able to walk to all of these venues and engage in all of the activities in a compact and visually attractive and humanly scaled area.
In the suburbs, the housing units proximity to a commuter rail or an express bus station.
If this hold water, then these downtowns should pursue revitalization strategies that reflect those points.
The Signals of Important Cultural Preferences. It’s important to keep in mind that the vast majority of the cities analyzed in this study are either suburban or medium-sized cities in rural areas. Very high proportions of the people who live in these areas prefer living in such communities. Their cultural preferences are for single family homes, high car use, and a selective tolerance of dense clusters of people. Living in multi-unit buildings situated in or near a walkable commercial district may only be valued by a limited number of niche market segments, such as empty nesters, commuter rail users, and young adults who need to share residency costs.
Looking at the 10 cities spotlighted in this study: while the weight of the geographic distributions of the labor force population and jobs tilt toward the .5 mile ring, it tilts strongly to the donut area between the two ring boundaries for the live-workers. This suggests that there may be some important differences between the live- workers residing in the donut and those people who live in the core downtown area. One might conjecture that since it is likely that the housing available in the donut will not be as dense as it is in the downtown core, and also more likely to be single-family dwellings, that this signals an important lifestyle preference. This, in turn, may correlate with higher income households who can afford to buy houses going to the donut.
Moreover, as we noted about Dublin, OH, even though the town has a ton load of creatives working there, where its residents have chosen to live suggests a high probability that a strong majority of them are not looking to live in a dense downtown location in a multi-unit structure.
Would An Infusion of Creatives Alter These Cultural Preferences and Increase Live-Working? Creatives are often seen as the strategic solution to many downtown challenges. Would and infusion of them counter a culture’s existing preference for a dispersed lifestyle? Research by David A. McGranahan and Timothy R. Wojan found that in metropolitan counties about 30.9% of the workforce were in creative class occupations, while in rural counties it was just 19.4%. 12 One might reasonably deduce that the cities analyzed in this study have creatives that probably account for between 20% to 30% of their workforces. Creatives are famous for living where they will find the lifestyles they prefer, so the fact that they live in these suburban and rural cities can be taken as a fairly strong sign that they like living in these kinds of communities. That, in turn, suggest that they may have adopted many of the cultural values of their larger community. Moreover, whatever impact they might have already is reflected in the current situation in these cities and their downtowns. Also, given their education, income and employment, creatives also can be expected to have had an above average level of influence in the community.
One possible influence for change might be creatives who move into these communities. Will they bring in a more cosmopolitan worldview? There has been some research on the people who are moving back to small towns and rural areas that shows many are in creative occupations and that they move back to be closer to their families, to enjoy a slower pace of life, and to live in a place where social ties and engagement are more important. 13 They maybe bringing their creative and entrepreneurial talents into their suburban and rural cities, but they are not there to create a mini Midtown Manhattan or a mini downtown San Francisco.
On the other hand, if the incoming creatives are largely young, not nested adults, then there might well be a demand for apartment units. However, brain gain when it emerges in these cities, to date, has brought in more families than singles.
ENDNOTES
1) These cities were selected based on data from: U.S. Census Bureau, Governments Division, Government Organization, Table 7: Subcounty General-Purpose Governments by Population-Size Group and State. Census of Governments (2007).
2) Two of the most successful “redos” are Uptown Charlotte and the Lower Manhattan CBD.
3) Eugenie Birch, “Who lives downtown”, Washington, DC: The Brookings Institution, Metropolitan Policy Program, November 2005, pp 20.
4) Paul R. Levy and Lauren M. Gilchrist, “Downtown Rebirth: Documenting the Live-Work Dynamic in 21st Century U.S. Cities.” Prepared for the International Downtown Association By the Philadelphia Center City District, pp.57
5) Aaron Renn, “SCALING UP: How Superstar Cities Can Grow to New Heights”, Manhattan Institute, Report January 2020, pp. 16, p.1
11) Thanks to Aaron Renn for bringing this to our attention.
12) David A. McGranahan and Timothy R. Wojan, “Recasting the Creative Class to Examine Growth Processes in Rural and Urban Counties”. USDA. https://naldc.nal.usda.gov/download/41989/PDF
Contact: N. David Milder, Editor The ADRR — The American Downtown Revitalization Review 718-805-9507 [email protected]
THE CREATION OF THE AMERICAN DOWNTOWN REVITALIZATION REVIEW (THE ADRR)
There currently is no real professional journal for the downtown revitalization field. For many years, that has been strongly lamented by many of the field’s best thinkers. To remedy that situation, a band of accomplished downtown revitalization professionals are creating The ADRR. It will be a free online publication, appearing four times each year. The target date for the debut issue is now set for the June 1-15, 2020 timeframe, with the second issue aimed for the Sept 7-14, 2020 timeframe.
This ADRR is intended to be a lean and mean operation, based totally on the availability of free online resources and the time, energy and elan contributed by its authors, advisory and editorial board members, and its editor.
How to Subscribe to The ADRR
Those interested can now visit The ADRR’s website, www.theadrr.com , where, on the home page, they can sign up to become subscribers. This enrollment places the subscriber on a MailChimp mailing list so that they can receive New Issue Alerts (see below).
How Issues of The ADRR Will Be Distributed.
New Issue Alerts, containing the Tables of Contents of issues and links to their downloadable pdfs of articles are sent to subscribers via a MailChimp email blast and posted to the ADRR’s website. Each issue’s pdf files initially will be stored in a folder in ND Milder’s Dropbox account from which they can be downloaded. Subscribers can download only those articles they want to read and whenever they want to read them. The ADRR also can be found via Google searches.
The Content We Are Aiming For. Only manuscripts about major downtown needs, issues and trends will be considered for publication. They will be thought pieces and not just reports about a downtown’s programs and policies that its leaders want to brag about. Articles must have broad salience and their recommendations broad applicability within the field. The “voice” of The ADRR will be anti-puff, and very factual, evidence driven, though not dully academic. Discussions of problems and failures will be considered as relevant as success stories if, as so often is the case, something substantial can be learned from them. The ADRR will not avoid controversial issues.
Also, the focus of The ADRR will not be overwhelmingly on our largest most urban downtowns, but also provide a lot of content and relevant assistance to those in our small and medium sized communities, be they in suburban or rural areas.
Who Will Write the Articles?
Hopefully, they will be from people in a broad range of occupations – downtown managers and leaders, municipal officials, academics, developers, landlords, businesspeople, consultants, etc. — who have significant downtown related knowledge and experience.
Curated Articles and Wildflowers. Initially, the ADRR will solicit articles to prime the content pump. Once The ADRR is up and running some articles will continue to be solicited on topics deemed a high priority by the editorial board members. Each board member can select a topic to curate an article on and seek the author(s) to write them. However, there still will be a continual traditional general call for submissions (wildflowers) focused on subjects selected by their authors. All submissions, curated or wildflower, must demonstrate sufficient merit to warrant publication in The ADRR. All submitted articles will be reviewed by board members. We hope to see many submissions!
Article Length and Author Responsibilities.
There will be short reads and long reads. Articles of 1,500 to 5,000 words will be considered. Multi-part articles of exceptional merit and salience will also be considered. What counts is their quality, not their length. Authors must have their articles thoroughly proofread prior to submission. Poorly proofed manuscripts will be rejected. Guidelines for submissions may be found on The ADRR website.
Publication Schedule:
Published four times per year, with a minimum of 5 articles in each issue. Given that this is an online publication, from a production perspective, the number and length of the articles is not a particular problem. However, from an editorial and content management perspective, the number of articles and their lengths can quickly become burdensome.
How It Will Be Organized.
The ADRR will be published by an informal group for its first year, with no person or group having ownership.
Editor. During the ADRR’s first year, N. David Milder has volunteered to serve as its editor.
The Advisory/Editorial Board :
Jerome Barth, Fifth Avenue Association
Michael J Berne, MJB Consulting
Laurel Brown, UpIncoming Ventures
Katherine Correll, Downtown Colorado, Inc.
Dave Feehan, Civitas Consulting
Bob Goldsmith, Downtown NJ, and Greenbaum Rowe
Stephen Goldsmith, Center for the Living City
Nicholas Kalogeresis, The Lakota Group
Kris Larson, Hollywood Property Owners Alliance.
Paul R. Levy, Center City District, Philadelphia
Beth Anne Macdonald, Commercial District Services
Andrew M. Manshel, author
N. David Milder, DANTH, Inc
John Shapiro, Pratt Institute
Norman Walzer, Northern Illinois University
Articles in our first issue that will be published in June 2020
Michael Berne, MJB Consulting, Working Title, ” Bringing Downtown Retail Back After COVID-19”
Roberta Brandes Gratz, “Malls of Culture.”
Andrew M. Manshel, “Is ED Really a Problem?”
N. David Milder, DANTH, Inc., “Developing a New Approach to Downtown Market Research Projects – Part 1.”
Aaron M. Renn, Heartland Intelligence, “Bus vs. Light Rail.”
Michael Stumpf, Place Dynamics, “Using Cellphone Data to Identify Downtown User Sheds”.
The Spotlight: “Keeping Our Small Merchants Open Through the COVID-19 Crisis”
Katherine Correll, Downtown Colorado, Inc.
David Feehan, Civitas Consulting
Isaac Kremer, Metuchen Downtown Alliance
Errin Welty, Wisconsin Economic Development Corporation.
Many of our most successful large cities are also ailing and
fragile in very essential ways, whether or not their leaders and stakeholders are
open to acknowledging that reality.
Yes, by many economic measures, lots of our major cities
such as NYC, San Francisco, Seattle and Washington, DC,, and especially their
CBDs, are more successful than ever. The value of their real estate continues
to soar. As do their employment levels and their ability to attract large
numbers of the creative/knowledge workers that are so essential to economic
growth and success. Affluent people are eager to live in and near their
flourishing downtowns. Pedestrian flows are strong. Tourist are flocking to
their arts, entertainment and cultural venues as well as their hotels,
restaurants and shops. Their streets are active at least 18 hours a day.
Yet, in 2017, Richard Florida published a book with a very
revealing title: ” The New Urban Crisis: How Our Cities Are Increasing Inequality,
Deepening Segregation, and Failing the Middle Class—and What We Can Do about It.” Increasingly, the core areas of our major
cities have become places where only the very wealthy can live and play. The
middle class can still work there, but even those with $1 million to spend on
housing too often cannot find desirable units.
Affordable housing is a major issue in these cities. Dinners for two in
their restaurants can easily cost hundreds of dollars. While movie tickets may
cost about $9 to $13, admission at their museums can run about $25, and tickets
to prime arts event venues can run over $125 in the primary market, and over a thousand
in the secondary market. Their downtowns are no longer everyone’s neighborhood,
but devoted to very wealthy locals and affluent tourists. If NYC is any
indicator, half of the most expensive new residential units are unsold, and the
other half of the units are occupied by part-time residents, and usually vacant.1 For
most city residents, their city’s downtown is no longer really theirs.
Some signs of disorder, sure to evoke disgust if not fear.
Added to the financial and spatial equity issues are the very significant return of problems of public disorder, such as homeless vagrancy and aggressive panhandling. The situation in downtown San Francisco has grown quite out of hand, with many sidewalks being blocked and pedestrians forced to run a narrow gauntlet of aggressive panhandlers, reclining/sitting vagrants, litter and human feces.2 Similar, if less egregious situations can be found in several other large West Coast cities. Closer to home, one BID manager in Manhattan recently told me that dealing with problems of disorder was now his organization’s highest priority and that this also is the case with many other BIDs in the borough. Center City in Philadelphia is also making a renewed effort to deal with the problems of disorder.3 Those of us who were around to see how the problems of disorder strangled downtowns during the 1970s and 1980s are very concerned about these flare ups of the problems of disorder. Will their resurgence strengthen? Have the tools we used to successfully cope with them in the recent past now lost their efficacy? Do local politicians and public at large have the required political will to do what must be done?
Also, the very success of our downtowns is
causing several other problems. One that goes unnoticed until it isn’t, is that
our pedestrian densities often have reached such high levels that they have
significant adverse impacts on the pleasure of walking, i.e., they diminish an
area’s walkability. Measures to relieve auto congestion have in some places,
e.g., Midtown Manhattan, provided some pedestrian decompression by converting
traffic lanes to pedestrian use. The potentially disruptive impacts of small
vehicles – e-scooters, e-bikes, delivery robots, etc. — and AVs are on a rapidly closing-in
horizon. For all their wealth, many downtown retail corridors in these
superstar downtowns have surprisingly high vacancy rates reaching sometimes
over 30%.
Creative Job Growth and Affordable Housing.
For some time now, economic development professionals have known that affordable housing is a serious and growing problem, especially those active in our large and successful cities – see table above.
Nationally, the relationship between the strong growth of high paying
high tech employment and the seriousness of the affordable housing problem was
also well-known. Large increases in highly paid creative workers leads to
rising housing prices. The new housing products sparked by that increased demand
will be largely upscale market rate. The emergence of the affordability issue
suggests that one way or another the demand of upscale creatives is pushing up
the costs of housing in what were middle income units.
The situation in San Francisco has already reached such severity that $1 million might buy you a home constructed from a former cargo shipping crate. An attempt even was made to smother office growth in the city in order to shift more resources to housing development. Several high tech firms have committed billions to solving this problem: Google will invest $1billion, as will Facebook, and Apple recently said it would commit $2.5 billion to the issue.4 I doubt they would be making these investments if the problem was not very serious.
Seattle shows what can happen to the housing market when there is a very large infusion of creative jobs by just one firm. By 2017 Amazon had eight million square feet of office space, occupying 19% of Seattle’s office space, and tens of thousands of office workers. While other major national high tech firms were also adding employees, an article by Mike Rosenberg and Ángel González in the Settle Times proclaimed: “Thanks to Amazon, Seattle is now America’s biggest company town.”5 It’s huge presence and growing workforce had fostered the following conditions:
By 2017, apartment rents were 63 percent higher
than in 2010, and Seattle became the
fastest-growing city in the country.
Home costs rose faster in Seattle than anywhere
in the nation, doubling in five years, and pushing the middle class to
surrounding, less expensive towns.
Seattle had the nation’s third-highest
concentration of mega-commuters — people traveling at least 90 minutes each way
to work. Their numbers grew 72 percent
in five years.
Buses were more packed than ever, and lines running
along the Amazon campus often were standing-room-only during rush hour. Metro
drivers at times have to leave commuters waiting outside an Amazon office
because their buses were full. Local officials even added buses to accommodate
the crush of Amazon interns that arrived during the summer.6
Even the mere announcement of a big development project that will bring
thousands of new creative workers into an area can raise prices by attracting real
estate speculators and convincing homeowners to keep their homes off of the
market so they can benefit more fully from the rising values of their homes.
For example, Amazon’s impact on the housing market in and around Arlington, VA,
it’s remaining HQ2 town, was swift, starting with the announcement of the deal.
A
year after the deal, with no construction completed and much not even started, Redfin
reported home prices in Arlington were up nearly 18% year-over-year. That far
outpaced the 2.7% price change in the D.C. metro area.7
Will New Expensive Housing for the New Creative Workers Help Make Housing More Affordable for Middle and Lower Income Households? One possible counter argument that has been offered by some colleagues is that the expensive new housing triggered by the new creative job holders will increase overall supply and thus help lower housing costs throughout the city. That has the prima facie validity of reflecting very basic economic principles, and there are some recent economic studies that at first blush seem to support that argument. However, I think that when you look more closely at their analyses and conclusions, their ability to really support this top down path to housing affordability becomes far less certain.
Evan Mast, in an interesting recent study using migration data found
that:
Migrants “to new central city multifamily
buildings come from neighborhoods with slightly lower incomes, and migrants
into these neighborhoods come from areas with still lower incomes, and so
forth.”
“Using a simulation model, (he found) that 100
new market-rate units ultimately create 70 vacancies in middle-income
neighborhoods. New construction opens the housing market in low-income areas by
reducing demand. A simulation model suggests that building 100 new market-rate
units sparks a chain of moves that eventually leads 70 people to move out of
neighborhoods from the bottom half of the income distribution, and 39 people to
move out of neighborhoods from the bottom fifth. This effect should occur
within five years of the new units’ completion.
These openings should lower prices, but the
effect may be small in the least expensive areas where prices are close to the
marginal cost of providing housing” (Italics added).8
Looking at Mast’s findings from the perspective of cities with severe
housing affordability problems, the issue of the marginal cost of providing
housing raises questions. In these cities the problem is precisely that the
marginal cost of providing housing is beyond what middle income households can
afford, not just the lowest income households. Moreover, the new units are not just
market rate, but relatively high market rate. Consequently, one might reasonably ask if these cities were
looked at separately, would “the effect” also be found weaker further up on the
income scale? My reasoning suggests the answer is very probably yes.
In another very interesting recent study, Liyi Liu, Doug McManus, and
Elias Yannopoulos at Freddie Mac looked at filtering, “the process by which properties, as they age,
depreciate in quality and hence price and thus tend to be purchased by
lower-income households. This is the primary mechanism by which competitive
markets supply low-income housing.”9 They found
that:
“(T)here is a wide range of filtering rates both
across and within metropolitan statistical areas (MSAs) for owner-occupied properties.
Notably, in some markets, properties ‘filter up’ to higher-income households”
“After 40 years, average real incomes increased
by 12% for Washington, DC (implying an average annual increase of 0.28%) and by
14.5% for Los Angeles (implying an average annual increase of 0.34%). Thus,
properties in these markets were filtering up to higher- income households as
homes aged. It is not surprising that these markets are ones with affordable
housing challenges (italics added). In contrast, Detroit and Chicago show
rapid downward filtering rates. For Detroit, the income index level drops 34.5%
over 40 years (implying a rate of filtering of -1.1% per year). In Chicago the
income index level drops by 23.7% over 40 years (implying a rate of filtering
of -0.67% per year).” 10
These findings suggest the dynamics of residential real estate in
markets with affordable housing challenges diverge from what basic economic
theory might suggest. The size of the upper income housing deficit then is an important
determinant of the degree to which new upscale housing just goes to upscale
residents or does add to units filtering down to less affluent households. If
the deficit is large, then there are more units filtering up, not down. If the
deficit is small, and more easily met by new construction, additional units can
filter down. Reducing large deficits require comparably large amounts of appropriate
new housing, and until that is achieved, unit filtration will be upward in
direction. It is reasonable to conclude that the entry of
25,000 new high income workers into an area probably will significantly increase
the upscale housing deficit. It is sort of like a garter snake trying to
swallow a bullfrog – it can be digwested, but the snake is literally stretched to
the breaking point and very exposed to its predators. What happened in Seattle
and Arlington provides some evidence to support that conclusion. In Arlington.
just Amazon’s announcement significantly raised housing prices and reduced the
number of units for sale.
Another more general relevant national trend is the fact that while
the number of middle-income households has shrunk over the past decade, the
number of more affluent households has increased (the number of low income
households also increased).
To my mind, the above suggests that in our cities where affordability
is a serious problem, a very large amount of new upscale housing is needed for
them to reduce price pressures in less expensive areas and reduce the upward
filtration of units. Moreover, the constant recruitment/creation of new highly
paid creative workers only adds to the amount of new upscale housing that must
be built in order to foster general housing affordability. Large upscale
housing deficits, by reversing the normal downward filtration of units, creates a significant demand for the construction
of so-called “affordable” units. That demand is real and felt, and politically
can take on a life if its own. Local citizens may not want to wait, at best,
five years for affordability to trickle down from the top, or even much longer
when the upscale housing deficit is large and not quickly being reduced.
Billionaire Row type housing projects that are at the top of the price
ladder with units that are either largely unsold or usually unoccupied do not
help reduce the upscale housing deficit. They are not targeted to be purchased
by the creative/knowledge workers. To the contrary, they make it more difficult
by absorbing desirable development sites and diverting investment funds and
entrepreneurial talents from the construction of the more needed “normal”
upscale units.
The situation in Seattle suggests there is some merit to my analysis. After
Amazon shifted its office growth to Bellevue, 15,000 new jobs, the growth of
housing costs in the city plateaued, though costs did not decline. Successful
downtowns and their nearby neighborhoods may need to be sure that they, like
the snake eating the bullfrog, have fully digested any large influx of highly
paid workers so they can move on again to ingest more creative/knowledge
workers.
Furthermore, this is perhaps the regional creative job growth path
that other ailing successful cities should follow until their upscale housing
deficits are sufficiently reduced.
Also, while the top down, trickle down approach may sound good to
economic theorists, from a politician’s point of view it’s probably useless. It
has no immediate concrete visibility. It’s more like mumbo jumbo economics for a
whole lot of their voters. It takes too much time to produce real, observable affordable
housing units on a sufficient scale.
Given that the demand for retail space and storefront
locations has dropped significantly, and so many downtowns are having a tough
time finding tenants for vacant stores, one might argue that some out of the
box thinking might produce some positive results. Well, it has made me think
again of an idea I came up with about 15 years ago about how to make it easier
for downtowns to attract quality retailers.
Unfortunately, when I shared it with the leaders of various statewide
organizations dedicated to downtown revitalization, their reactions led me to
believe that they saw the idea was so out of the box that it was somewhat kooky
and impractical. Allow me to take you through the thought process that took me
to this idea and then to explain it. Readers are then invited to decide if the
idea is so whacky and impractical or if there are enough kernels of truth to it
that they may want to explore it themselves.
DOWNTOWN BUSINESS RECRUITMENT
Around 2004, I was writing my book on downtown business
recruitment and my musings led me to notice that in many downtowns, even those
in relatively small and medium-sized communities, there is usually at least one
store, and often several, that are pretty successful. These stores are popular
and viewed as assets by local residents. Their owners are making money and their
success is an operational demonstration of their strong business skills in downtowns
of the type their stores are located in.
My thought was that it be great if these operators could
somehow be nurtured into creating small and medium-sized chains that
specialized in operating in other comparable downtowns within reasonable
driving distances. These operators are not newbies, and know how to succeed in
downtown environments. In fact, such chains have indeed emerged in many of our
dense urban and ethnic downtowns in the NY-NJ metro region such as Jamaica
Center, Downtown Brooklyn, Fordham Road, Midtown Elizabeth, Bergenline Ave in
West New York, etc., but they have not appeared in middle to upper income small
and medium-sized downtowns. Why, I asked myself?
While for business recruiters such successful small business
operators are exactly the kind of tenant prospects they are looking for, finding
them is difficult and expensive – far more expensive than identifying a retail
chain that is a legitimate tenant prospect. Another problem is an anti-poaching
professional ethic that means the business recruiter does not want the small
merchant to move, but to replicate in a new location – in effect, to have the
merchant start a new chain.
Getting successful small merchants to open another store is
often challenging became so many of them are satisficers who are happy to
settle with a comfortable income and reasonable working hours.. Fewer are the
maximizers who want to maximize their incomes and/or the size of their economic
empires. Identifying the maximizers is another recruitment filter that
increases the complexity of the recruitment effort, the time it needs to
succeed, and its costs. A final problem is that even among the maximizers there
very often are knowledge and networking
deficits. They may not know how to select a good location or even how much space they will need or the features
they should look for in a new storefront. They also may not have access to the
financing their expansion might need, or even have a firm idea of what that
might cost, or have access to people
with the knowledge who could guide them about such matters.
PARTICIPATING DOWNTOWNS WOULD HAVE TO GIVE, IF THEY WANT
TO GET
It struck me that if several downtown EDOs could identify
the local merchants who were successful and were interested in becoming a chain,
then several chains would be growing, and they would be encouraged to locate in
one of the other cooperating downtowns by an incentives package. Such
incentives might have some financial component, but preferably take the form of
helping the new retailer through the various steps needed to open a store in
that downtown such as finding a storefront, possible funding sources, technical
assistance providers and getting through the town’s permissions and approvals
process. This could considerably cut the cost and complexity of identifying quality
retail tenant prospects as well as reducing the complexity, costs and hassle of
a retailer opening in a new location.
However, few if any of these downtown EDOs could be expected
to directly provide the chaining merchants with the technical assistance they
need because so few of them saw
providing such a service as part of their missions or had the staffs or budget
to do so. Their real role would more likely be that of a networking broker who connects the needy
merchants to the direct TA providers such as a SBDC, local college or local
commercial broker or banker, etc..
STATEWIDE ORGANIZATIONS
Around that time I was active in Downtown New Jersey. It
struck me that any program aimed at cultivating the creation of new retail
chains that would focus on locating in our downtowns would be best executed by
a statewide organization dedicated to downtown revitalization. That would
assure the inclusion of a sufficient number of downtowns. My discussions with
DNJ’s leaders produced smiles, thanks and a polite rejection of the idea based
on it being seen as impractical because:
It was outside of DNJ’s mission and its
traditional focus on such functions as the transfer of information and facilitating
the networking among downtown leaders and stakeholders across the state
DNJ lacked the skills, staff and financial
resources to do it.
They doubted that the chaining retailers could
be steered to opening new stores in any of the other downtowns in the program.
I also discussed this idea with the managers of three state
Main Street programs with no bites. Here the issues were again their limited
resources, and its unorthodoxy as a Main Street program.
My Updated Thoughts
The need for such a retail chain building program that would
help our downtowns has never been greater.
My recent analysis of the empty storefronts problem in our
small communities, say with populations under 10,000, is that the problem is
not so much with consumers on the demand side as with the lack of new small
retailers on the supply side. Startups are off and I fear that all the media
attention to a retail apocalypse has discouraged many potential new retail
merchants from appearing in these downtowns. GAFO stores, the ones that have
been under the most stress in recent years, never had a big presence in these
towns. Most of the shops responded to local needs such as food for the home,
food away from home and drugstores items. The demand for these goods is
relatively inelastic.
My initial program concept had, I think, two major
weaknesses. The incentive package for the chaining firms to locate in other
downtowns participating in the program was too weak. Those incentives need to
be bolstered. One possibility is for the initial store leases to start off with
low rents, perhaps based on a percentage of the retailers annual sales, that
then increases with growth in the sales. Free participation in downtown niche
marketing programs for X number of years might also be offered. Furthermore, some locations in these downtowns
might offer access to the new OZ investment incentives. I am certain downtown
leaders can come up with still other meaningful incentives without having to
become rocket scientists.
The second weakness was Looking at the wrong types of
statewide organizations. However, creating retail chains probably would fall
under the missions of state development corporations such as the Empire State
Development Corporation and the Wisconsin Economic Development Corporation.
They also could mobilize the financial and personnel resources needed to
operate programs aimed at achieving this objective. Of course, there are also
parts of state universities that could play this role, such as Cornell Extension which already runs
the state’s Main Street program. The business school at Ohio State or any of
the other Big Ten schools could do it, too. Such a program might provide useful
field experiences for their students.
Is this idea now ready to fly? I think not quite. More
thought is needed on several points such as how to: get the downtowns on board,
improve the incentives package, and how to sell the state EDCs and universities.
However, I do think it is certainly worthy of more attention and wider
discussion. What do you think?
A New Crazy Idea
There might also be another possible play to creating these
new retail chains: one downtown sets out to become THE place that specializes
in their creation. Such a downtown would need a strong existing entrepreneurial
environment that includes lots of available TA providers, cooperative
landlords, a strong band of local angel investors, and an extremely competent
and far sighted EDO. Ah, another kooky idea? I don’t know. I took a close look
at downtown Cortland, NY, last year. I thought it had terrific, if
under-utilized, assets to help new and expanding micro and small businesses,
including a branch of SUNY. With the
right leadership and organization, it might well pull off such a strategy. This is a subject for another day.
