The New Normal’s Challenges to Developing a Downtown Entertainment Niche Based on Formal Entertainments: Part 1

Posted on March 9, 2014 by DANTH

Posted by N. David Milder

Introduction

This is the first part of the third in a series of articles about the “new normal” for our nation’s downtowns. It focuses on the challenges many downtowns — especially those that are not very large — now face when they decide to bolster their central social district functions by creating and/or strengthening their venues for the performing and visual arts, e.g., performing arts centers (PACs), theaters, cinemas, museums, concert halls, museums, art galleries, etc. Part 1 deals with a general introduction of the challenges, a discussion of who can afford formal entertainments, and changes in the ways governments, corporations and foundations are funding arts projects. Part 2 will turn to changes in the ways Americans attend performing arts events and visit visual arts venues. Part 3 will survey a number of formal entertainment venues.

As noted in an earlier article on the new normal for downtown, successful formal entertainment venues undoubtedly can be strong assets for the downtowns in which they are located. However, the success of such venues has long been uncertain and challenged because, from their get-goes, they are the equivalents of loss leaders for their districts. Most are nonprofit operations that sell tickets to events/performances or charge visitors admissions fees that seldom cover their full costs. For example, among performing arts centers,, be they large or small, only about 40% of their operating costs usually are covered by performance revenues (1). To survive financially,they must be able to tap a number of “charitable” revenue streams, e.g., grants, bequests and other donations from government agencies, corporations, charitable foundations and individuals. This financial dependence makes them vulnerable. Evidence suggests that recent trends have made their financial success significantly more difficult to achieve. Funding for the arts took a big hit during the Great Recession, with its full recovery still in doubt, while research studies have consistently shown attendance at performing and visual arts venues has been changing, in some instances declining significantly for over a decade.

In the performing arts, the fees of performers — be they individuals or groups — are related to their popularity. The ability of a venue to attract them will depend on its seating capacity and the ticket prices it can command. Consequently, as more communities with comparatively limited market area populations and wealth try to develop such venues, they often find that their smaller potential audience base, seating capacity and financial resources require adjustments of their aspirations and a fine-tuning of their programs. In other instances, formal entertainment facilities have been built that just have too much capacity for their market areas or are weakened by new competing formal entertainment centers within their market areas

The arts as an engine of economic growth and downtown revitalization too often seems to have achieved the exaggerated status of a religious credo among downtown advocates or the unrealistic expectation among some of them of being the “silver bullet” solution path to economic rebirth. While the arts undoubtedly can contribute to economic growth, their ability to do so will depend on arts venues and programs being planned and designed in a manner congruent with local needs, behaviors and resources. This challenge is now made more complicated by the fact that these local needs, behaviors and resources may be subject to substantial change.

Consumer Expenditures for Entertainment Admissions and Fees.

Tickets admission fees are an important revenue source for the organizations that operate formal entertainment venues. The less revenues they realize from tickets and admission fees, the more they must rely on obtaining outside funds from government agencies, corporations, foundations, and individual donors. The fees can vary. For example, the Cincinnati Museum of Art has free admission; the Columbus Museum of Art charges $12; the Museum of Modern Art in NYC has a $25 fee; the ticket prices for Broadway shows and tickets for concerts by major attractions can reach well over $100 in prime venues. Obviously, the affordability of these

admissions is a function of both their prices and the incomes of those who would purchase them.

Formal entertainment venues that charge relatively high prices are in a sense targeting more affluent households and a downtown entertainment niche based on a cluster of such venues is likely to be a feature that helps draw affluent households or young people with a lot of discretionary spending power to want to live in or very near to the district. During the 1960s, 70s and 80s attracting such residents was just a long-term goal of many downtowns leaders. Today, in a growing number of downtowns, that goal has been achieved and they are stronger for it. Sophisticated formal entertainment venues that feature major attractions that have substantial admission fees are probably well suited for such downtowns. But, a lot of downtown users, be they current or potential, are being priced out of using these formal entertainment venues.

The table above shows that nationally, in 2012, 56% of the expenditures for entertainment fees and admissions came from those in the top 20% of the households sorted by annual incomes. The mean annual household income in this quintile was about $167,000. Those in the top two household income quintiles, with average annual incomes over $75,900, accounted for 77% (56% +21%) of all entertainment fees and admissions.

The general thrust of these findings is not new: the more affluent have long spent more on entertainment, especially the arts. What is new are:

The emergence of deliberate consumers in middle income households who have reduced discretionary incomes and for whom discretionary entertainment expenditures now are a lower priority than in years past (2)
The income stagnation and general economic decline of middle income households, a trend that preceded the Great Recession, but recently has become a hot political issue.

The implications for many downtowns are:

More than ever, ventures to establish new formal entertainment venues must be calibrated in their ambitions, designs and costs to the financial resources of local residents that might be tapped through admissions, fees and donations
Such ventures are more likely to succeed in communities that have greater residential wealth, especially if capital investments in new buildings, busy event/performance schedules and pricey admissions fees are involved
In smaller and less affluent communities such ventures are very likely to need strong long-term government subventions and grants from corporations, foundations and community organizations. Most downtowns are likely to fall in this category. In these communities, the presence or absence of very broad support among local residents, the business community and elected officials can be the deciding factor in whether this critical external financial support will be obtained. Often such strong support is mobilized around something or someone that is a source of considerable community pride or identity, such as the artist Grant Wood in the Cedar Rapids (IA) Museum of Art and life on the plains and the Oregon Trail in the Legacy of the Plains Museum in Gering NE.
Many of the downtowns with weaker financial resources to tap might do well to consider that many Americans see art exhibitions and attend performing arts events not only in museums, theaters and concert halls, but also in parks or other open air facilities, restaurants, bars, nightclubs, community centers, places of worship, college campuses, etc. (See table above).

Grants for Arts Nonprofits

Since the onset of the Great Recession, it has become more difficult for arts nonprofits to get the grants they need from public sector agencies, corporations and foundations. An unanswered question is whether this funding trend will turn around as the nation’s economy improves. Downtown leaders considering the development or expansion of formal entertainment venues might benefit from understanding the topography of these new financial support patterns for the arts.

Public Sector Funding. It is important to understand the magnitude of the public sector’s financial support for the arts. It now only accounts for about 7% of the revenues of arts nonprofits nationally and, adjusted for inflation, between 1992 and 2013 public funding declined by about 30%. FY2013 was the first fiscal year since FY2008 that aggregate public sector funding for the arts has increased, but it is still far below former high years (3). The National Endowment for the Arts (NEA) only accounts for about 12% of the public sector funding. Its expenditures are not expected to increase significantly anytime soon.

County and municipal governments account for 63% of the public funding for the arts and they recently have shown signs of increasing their funding levels as their economies improve and the impacts of natural catastrophes (e.g., Hurricane Sandy) abate. However, local governments in more densely populated areas often face a large number of requests for arts funding and that usually results in many relatively small grants.

Corporate Support. Unfortunately, data are unavailable for small and medium-sized corporations, but the major findings of a recent report by CECP and The Conference Board on giving in 2012 by large corporations are still illuminating (4): though large corporation giving increased by 42% from 2007 to 2012, funding for the arts decreased by about 40% during that period (5)!

On the hopeful side for a resurgence in corporate arts funding is the fact that giving to the arts remains popular among the corporations; it is the size of their contributions to the arts that have decreased. But, changes in corporate behaviors and preferences suggest that such a resurgence is not likely to happen any time soon:

Education and economic development have become much more important funding priorities
More corporations want to make in-kind donations and arts organization may find it difficult to benefit from bulk product donations
Corporations are increasingly seeing giving as part of their corporate strategy and less as charity
Corporations are increasingly reviewing their giving from a return on investment (ROI) perspective and nonprofits often do not know how to provide the needed metrics (6)

Foundations. Since about 81% of America’s larger corporations have foundations and they account for about 35% of their corporations’ total giving, there is some overlap between corporate and foundation funding (7).

In 2011, the last year for which there appears to be available data, there was a familiar pattern: while there was a 25.3% increase over 2010 in overall giving by 419 foundations, the increase for the arts was a marginal 0.5%. Here again, the arts’ share of the number of grants remained unchanged (8). However, a “larger share of arts grant dollars provided operating support than most other fields” (9).

Endnotes

1. Harac Consulting, “Evaluation of SOPAC.” October 2011, p.3. http://southorange.org/SOPAC-finalPDF.pdf

2. See: https://www.ndavidmilder.com/downtown-revitalization/the-deliberate-consumer

3. Ryan Stubbs “Public Funding for the Arts: 2013 Update,” GIA Reader, Vol 24, No 3 (Fall 2013): http://www.giarts.org/article/public-funding-arts-2013-update

4. CECP and The Conference Board, “Giving in Numbers: 2013 Edition.”

5. Ibid, page 20.

6. See:ARTSblog » Blog Archive » Michael Stroik. “Corporate Funding Came Back After the Recession, But Did it Leave the Arts Behind”_ (from The pARTnership Movement, an initiative of Americans for the Arts) posted Oct 4, 2013 and ARTSblog>> Judy Belk, “As Corporate Giving Bounces Back, Six Things Nonprofits Need to Know,” posted December 13, 2013.

7. See endnote 4, page 5.

8. Steven Lawrence and Reina Mukai, “Foundation Grants to Arts and Culture, 2011 A One-year Snapshot,” Foundation Center, GIA Reader, Vol 24, No 3 (Fall 2013), http://www.giarts.org/article/foundation-grants-arts-and-culture-2011

9. Ibid.

Some Key Aspects of the New Normal for Downtowns: some emerging challenges ©

Posted on December 8, 2013 by DANTH

Article 1 – Part 2

N. David Milder

Author’s Note for Downtown Curmudgeon Blog and Newsletter Readers

A number of readers of the Downtown Curmudgeon blog have asked me to write an article on the new normal for downtowns that I have referred to in many of my blog postings in recent years. In response, I have planned a series of articles that will be posted over the coming six to eight months.

This is the second part of the first article in that series. It focuses on providing a description of the critical characteristics of the new normal and some of the emerging challenges downtown organizations now may face under it. Proper treatment of this subject requires sufficient space and cannot be done within the usual short take format of most blog posts and email blasts. While I have tried to be economical in my use of words, this article is almost 12,000 words long, even when I have skimped on examples and skipped using data tables and other illustrations. I have divided it into two parts. Each part will be posted to my blog and emailed separately.

Later articles in this series will cover such topics as the arc of downtown revitalization, the potential implications of the new normal for downtown development projects and BID programs.

Some of the Challenges Emerging Under the New Normal

Downtown revitalization is a process that never ends because: change is unavoidable and downtowns will consequently face new challenges; downtowns will have new assets and liabilities that will call for them to amend their strategies and visions of the “promised land.” Consequently, downtowns under their new normal can expect to face important challenges. Below are some that already have arisen. Downtown prosperity does not mean the end of downtown challenges — and it is important that prosperity’s joys do not limit downtown leaders’ awareness of the challenges. Following are some challenges that I think are among the most important. Here, again, my discussion is intended to be illustrative, not exhaustive or definitive.

1. The Deliberate Consumer. The Great Recession brought into sharp national focus consumers who act more cautiously and more deliberately in their purchasing decisions. This has impacted downtowns along every dimension where consumer behaviors and expenditures are important: retail purchases; housing rentals and purchases; entertainment admissions and equipment; transportation modes and use; healthcare, childcare and eldercare services, etc.

Deliberate consumers put needs far ahead of wants, look for value in their purchases and are much more careful about the use of credit and loans than in previous decades (19). Initially, affluent households exhibited deliberate consumer behaviors, but this eased substantially as the impacts of the recession declined. However, for the broad group of middle income households in the nation’s second, third and fourth income quintiles, this behavior has hardly eased. Indeed, it is part of a trend for a growing number of middle-income families to face strong economic stress that dates back at least to the mid 1990s and is expected to continue on to at least 2021. As Warren and Tyagi outlined in their 2004 book, median incomes for these middle income households were long stagnant, while their disposable incomes were being constantly eroded by the ever rising costs of healthcare, childcare, and education tuitions and fees as well as by substantial interest payments on mortgages and credit cards (20).

More recently, additional stress has been added by the weakening in the job market, not only in terms of the number of jobs available, but also their reduced skill levels, lower pay. Also, the private sector has a growing reliance on freelance workers, outsourcing jobs abroad and computerizing middle level management, technical and support functions. The ability of the stressed middle-income families to find discretionary expenditure dollars has been also impeded by their reduced use of home equity loans and more conservative use of credit cards.

Post Great Recession, the impacts of the deliberate consumer are being felt unevenly by downtowns depending on the degree to which their businesses and fee charging nonprofits rely on middle-income patronage. Those with lots of affluent households living in and near the district as well as strong tourist traffic, such as Midtown Manhattan and Chicago’s Miracle Mile, are least likely to be significantly impacted. Affluent suburban downtowns, such as Greenwich CT and Wellesley MA, are also unlikely to be significantly impacted.

Similarly, in large cities, the impact of the deliberate consumer on many large low-income shopping areas, where retailers and other businesses succeed because the population density allows sufficient aggregation of low household expenditures, has been comparatively small: they have few middle income users and their low-income shoppers always have far fewer discretionary dollars to spend or lose. However, several “ethnic downtowns” I’ve visited in medium+ sized cities have been improving in recent years by attracting more of the middle income shoppers living and working in their trade areas. They are being impacted by deliberate consumers.

Bottom line: Most of our nation’s downtowns rely on middle-income shoppers. In the new normal, these shoppers are behaving as deliberate consumers. The Great Recession did not create the deliberate consumers – their household income stagnation started a decade before –though it certainly worsened their level of economic stress. For many downtowns, the emergence of the deliberate consumer:

Provides a constraint on economic growth
Impacts on the types of retailers and service businesses that can succeed and be attracted to their districts.

2. New Dynamics in Retail Markets. A recent article from McKinsey aptly characterizes today’s retail:

“The North American retail landscape looks quite different today than it did even ten years ago….. Some predict that retail will change more in the next five years than it has over the past century and that the extinction of brick-and-mortar stores isn’t far off. Our view is less dramatic, but we do believe that big changes are inevitable and that retailers must act now to win in the long term.” (21)

Retailers are being hit by subpar economic conditions and the deliberate consumer. Again from the McKinsey article:

“Economic indicators do not paint a rosy picture for retailers: budget deficits are mounting, unemployment remains high, and the average consumer’s balance sheet—while improving—remains shaky, for it has taken more than five years to recover the $16 trillion in net worth US consumers lost from peak to trough in the recent recession.”

The other powerful factor that continues to impact on the character of retail operations is the Internet. As of June 20013, online sales only accounted for 5.8% of all retail sales, but McKinsey estimates that it will rise to 15% by 2025, with few experts doubting that it will continue to grow significantly beyond that date (22). Additionally, a 2009 report from McKinsey estimated that by 2011 the Internet would play some role in about 45% of all retail purchases (23). The Internet is influencing both how brick and mortar retail space is being utilized and how much space is needed. Increasingly, successful retailers – large and small — have adopted a multi-channel approach that integrates e-commerce capabilities with the operations of their brick and mortar stores.

Lower Growth Rate. Industry forecasts indicate that the compound annual growth rate for retail sales over the next five years will be only about 3% to 4% instead of the 5% to 7% experienced in the decade before the recession and just a bit better than the 2.4% of the 2007-2012 period. Furthermore, these limited growth opportunities are most likely to be found by tapping the Boomer, Millennial and Hispanic market segments (24).

Show me the money: I strongly believe that stronger retail growth rates will not return until the income stagnation of middle class households is eroded. Periodic expenditure surges may occur as their consumer credit is used and repaid, but not long-term higher growth.

Significantly Reduced Demand for Retail Space. Together, the deliberate consumer, the growing power of e-commerce and slowed retail sales growth are having some profound effects on the retail industry. For example:

Retail chains have closed many stores (e.g., 4,500 just in “post-recession” 2012) and now look for fewer locations that average about 25% less space than their existing stores (25)
Many use the resulting cost savings gained from fewer stores and smaller formats to pay for improvements in their own e-commerce capabilities, while several big box chains are developing the smaller formats to ease entry into tight urban contexts
Nationally, the amount of retail space decreased by 259 million SF between 2001 and 2011 and is expected to drop by another 210 million SF by 2016 (26). The number of real estate experts who recognize that the nation has far too much retail space has grown substantially
Today, only about one-third of the 1,300+ malls in the U.S. are high-growth, investment-grade properties; another one third are in deep trouble and prone to either closing or being re-purposed. (27) The successful malls are increasingly taking on the look and functions of successful downtowns and adding many non-retail functions.

Downtowns That Want Strong Retail Will Need to Work Hard to Get It and Keep It. Overall, downtowns consequently face a future in which having a robust retail sector is certainly possible, but it has become much more challenging to achieve and maintain than it was in the 15 years prior to the Great Recession. Most downtowns that want their retail to be strong will have to work harder and more proactively than they have in decades to get it. However, there is significant variation in the degree to which downtowns will feel their retail challenged as well as in the ways the challenges are manifested. For example:

Most importantly, retail chains have themselves become more deliberate and cautious, avoiding consideration of locations that are not proven and deemed high risk. Looking for fewer and smaller locations, they have become much more selective. That means, for example, most downtowns that have not established themselves favorably with GAFO retail chain site selectors effectively have been further downgraded as possible retail locations. For them, having a cluster of robust GAFO retail shops will depend on attracting and/or growing attractive independent small retailers. However, they probably still have the ability to attract convenience-type retail and food related chains. Furthermore, there are some downtowns that have successfully lured retail chains, but their stores have underperformed compared to others in their chain. They, too, face a downgraded potential for attracting new retail chains
Retail in large, “big league,” downtowns that have affluent residents living in and near the district as well as lots of tourism and a high daytime population continue to do well as reflected in asking retail rents that can reach $3,500 PSF (28)
The suburbs are saturated with retail; growth opportunities are shifting to dense urban areas and possibly some ex-urban areas. However, here again, downtown retail in affluent suburban communities remains stronger than in neighboring middle-income downtowns, and they continue to be favored by retail site locators
In many medium and large downtowns, small independent merchants are disappearing, sometimes at alarming rates, because of unaffordable high rents, reduced consumer demand and strong e-commerce competition. For example, the average sought retail rent in Manhattan in the Spring of 2012 was $116 PSF. (29) That means for a small merchant to afford renting a 2,000 SF store, the operation would need annual sales of roughly $1.9 million to $2.9 million per year. In a thriving NJ suburban downtown, where retail rents are about $50 PSF, a merchant would need annual sales between $0.833 million and $1.25 million to afford renting that 2,000 SF shop. Such sales numbers require an operator with exceptional core merchant skills and strong financials, a treasured find in any downtown
In many medium-sized downtowns, GAFO retailers were among the hardest hit by the recession, the deliberate consumer and e-commerce. The potential for this type of retailing to return increases with improvements in the downtown’s regional economy, especially its housing sector
Many downtowns continue to report that when storefront vacancies are filled, the likely new tenants are personal and professional service operations, not retailers. However, many downtowns have benefited from such “pamper niches” – many others might be wise to follow their example (30)
Downtown food related operations (e.g. groceries and restaurants) and personal services have been comparatively strong from 2007 through 2012. In many downtowns, they provide the spine for the district’s revitalization. Nevertheless, their importance is too often underestimated and far too little attention is paid by retailers to leveraging the customer traffic they draw to the district.

Under the new normal, many downtown organizations, especially those whose trade area customer bases are dominated by middle income households filled with deliberate consumers, will need to take a new, in-depth look at their current retail and its market-driven prospects for growth. They then will need to formulate a strategy to achieve that growth. Some may conclude that the strong presence of the Boomer, Millennial and Hispanic market segments or the power of their strong existing niches (e.g., entertainment, wedding, home and hearth, etc.) is sufficient not only for growth by meeting unmet demand, but also for winning market share from competitors. Other downtown organizations may conclude that while growth in neighborhood/convenience type retail remains viable, their GAFO growth potential has significantly eroded or can probably only be achieved by relying on the attraction of small independent operators. Many, especially in small districts, may decide to focus on neighborhood/convenience type retail. Still other downtown organizations may decide to make retail growth a lower priority and to focus instead on leveraging other strong downtown assets such as their entertainment and pamper niches.

The new retail assessment that many downtown organizations need to undertake can benefit from a “right fit” approach that includes:

Getting a good handle on the types of retail functions, e.g., niches, they can attract given the emergence of the deliberate consumer, the impact of the Internet, the altered pattern in retail chain site location decision-making and the downtown’s ability to attract or grow quality small retailers
Having a workable estimate of how much market-supported retail space (in SF) each of these retail functions can provide
Identifying the stock of probably available retail spaces and assessing their ability to compete
Matching the market-driven demand for retail space with the downtown’s stock of probably available commercial spaces to determine such things as which spaces are strongly competitive and those that need to be improved or converted to non-retail uses, as well as how much new space should be developed.

Perhaps, more than ever before, as the interest of GAFO retail chains in many communities recedes, downtowns will need to attract or nurture quality small merchants if they want to have a strong group of attractive retail shops. However, this cannot be easily accomplished. Successful small merchants need appropriate skills (including the ability to use the Internet), sufficient capital, affordable rents and viable locations. Today, most downtown small retailer recruitment is like throwing a bowl of spaghetti against the wall and being lucky if a few pieces stick. Most downtown recruitment programs rush to find and are proud to sign new small retailers. Too few recruitment programs vet them to assess whether they will require assistance; fewer still then can link those “indies” that need assistance to appropriate technical assistance providers. Understandably, these are complicated and resource-eating tasks and difficult for downtown organizations with budgets under $500,000 to undertake. Nonetheless, something like this will need to be done in numerous downtowns if they are to have any meaningful amount of quality GAFO retailing. Consequently, many downtown organizations may need to start thinking about expanding the range of functions that are included in their understanding of their district management mission.

While discussions about the technical assistance needed by a downtown’s small retailers often centers on finances, in today’s world their need for technical assistance that can help them gain an effective Internet presence is growing rapidly with each passing day. In many downtowns, the Internet capabilities of their small merchants will determine the attractiveness, strength and viability of the district’s retailing. If the downtown organization does not provide or facilitate the needed technical assistance, then who will? Here again, the costs in staff time and money admittedly can stress the budgets and skill sets of many downtown organizations.

So far, no model program has emerged for overcoming this impasse. Here are a few thoughts about developing one:

Effective downtown organizations are smart about often getting other organizations to do what the downtown needs. Can they get other organizations to help provide the needed Internet technical assistance?
Perhaps several downtowns can band together to reduce the costs of developing and operating such a program through the creation of a consortium or the use of an umbrella organization such as a county EDC or the local SBDC
However, whichever organization is the technical provider, it is essential that its program be correctly designed to avoid problems that have hindered other attempts
The biggest need for help will probably be with retailers having fewer than five employees
Many of these merchants have been scared off by overly complex and costly types of e-marketing tools or programs that consultants have offered them. Some merchants have actually tried e-commerce tools and found them ineffective and/or off-putting
The two basic marketing objectives the small merchants should focus on are a) being found easily on the Internet and b) cultivating existing customers
Many small merchants can achieve both of these objectives by using relatively inexpensive and easy to use Internet tools (31).

Bottom line: downtowns face a future in which having a robust retail sector is certainly possible, but it has become far more difficult to achieve than it was in the 15 years prior to the Great Recession.

3. Some New Dynamics in Downtown Development. On the positive side, Christopher Leinberger has made a strong case for “walkable urbanism,”, i.e., the creation of urbanized environments ”… in which most daily needs can be met within walking or rail-transit distance of one’s home,” being today’s major development trend.”

Others talk in terms of an overlapping concept, transit-oriented development (TOD), that can be defined as “higher-density mixed-use development within walking distance – or a half mile – of transit stations” (32). Walkable urbanism seems to give more emphasis to walkability while TOD pays more attention to developing around transit stations, but both approaches overlap in stressing the values of pedestrian friendly environments and easy access to transit.

Leinberger also notes that:

“Pent-up demand for this type of development has been proved convincingly during the housing collapse of the past three years (2008-2010 when) most of the housing decline occurred in the overbuilt, automobile-dependent suburban fringe while walkable urban places generally maintained their home values” (33).

A study released in 2013 — commissioned by the American Public Transportation Association and the National Association of Realtors and that was prepared by the Center for Neighborhood Technology — strongly confirmed Leinberger’s observation finding that:

“Across the study regions, the transit shed outperformed the region as a whole by 41.6 percent. In all of the regions the drop in average residential sales prices within the transit shed was smaller than in the region as a whole or the non-transit area. Boston station areas outperformed the region the most (129%), followed by Minneapolis-St. Paul (48%), San Francisco and Phoenix (37%), and Chicago (30%)” (34).

In addition to the benefits of living in more walkable, urbane communities and enjoying “more resilient residential property values,” the study found households living in transit sheds had better access to jobs and lower average transportation costs than the region as a whole” (35).

TOD has been especially of value for many suburban downtowns that have commuter rail stations.

Leinberger also presents an interesting argument that, although it is significantly harder to finance “walkable urbane” projects, they can be very attractive to investors, especially patient equity providers, because:

“…There could be significantly higher cash flows as the project matures. Unlike conventional development where cash flows have been hybridized to be loaded at the front end—the result of lower construction costs for simple commoditized product—it appears that cash flows from walkable places get better over time. Value spirals upward as the critical mass of a walkable place is achieved and enhanced. As more development takes place within walking distance, there are more people on the street and therefore rents and sales prices go up, resulting in land and building values rising, which leads to increased cash flows and so it continues upward as more development is added to the area” (36).

Economic factors combined with changes in the ways tenants want to use their leased spaces have altered the nature and strength of demand for downtown retail spaces, offices and housing units.

Retail. As mentioned above, nationally, there is significantly less demand for retail spaces and much of the current inventory needs to be repurposed. Also, significant changes are appearing in the ways that retail spaces are used because of the Internet, and their full impacts have yet to be manifested. For example:

There is less need for on-site space to store inventory, especially with large, low turnover items
There is more need for space for wrapping and shipping e-purchased items, picking up e-purchased merchandise, consumers touching and feeling merchandise
Sales transactions increasingly are done by self-checkouts or by salespersons throughout the store using smartphones or tablets, e.g., Apple stores, Home Depot, CVS
Internet searches mean that more retail stores are turned into destinations and such destinations have less need for the most prime locations

Regarding downtown development, these trends now are most visibly playing out in the reduced aspirations for retail growth found in many downtowns and the more frequent resistance to including retail in mixed-use residential projects in suburban downtowns. For example, it is causing some communities, such as Arlington County, VA, to revise zoning laws to allow other uses in addition to retail in ground floor commercial spaces, because so many retail spaces were not being leased (37). I also have either heard developers state or read about developers in CO and CA saying, that they preferred not to include retail in their downtown residential projects because it is so hard to get credit worthy quality tenants and that the revenues from residential use of the ground floor space would be greater and more reliable. Most of the projects of the developers I spoke to would be located in the downtowns of upper middle-income suburban downtowns, where they see signing GAFO retail chains would be costly, time-consuming and increasingly uncertain of success. Recently, I have also seen a mixed use project on a highly trafficked hipster street in Brooklyn in the process of converting ground floor retail spaces into residential units, though I think that ground floor retail in new mixed use projects is generally secure in dense urban locations.

In the types of downtowns where developers are showing resistance to putting ground floor retail in their residential projects, the downtown organization and, most importantly, the municipality’s leaders need to:

Decide if they really want more retail and not just because they and their voters might like it, but because there is good evidence to suggest that a) there is market support for this additional retail space and b) which kinds of retailers are most likely to be interested in it
Be prepared to offer developers incentives for embracing retail into their projects. They might include assistance in developing marketing information and collaterals, identifying qualified small merchant tenant prospects and some form of financial incentive, e.g., low cost loan, pilot, TIF, etc.
Develop a special incentive program to make rents in new mixed-use buildings more affordable to more small merchants.

For some time now, many downtown economic development officials have viewed mixed-use projects as the best way to provide the Class-A, vanilla box retail spaces needed to attract high quality GAFO retail chains. However, under the new normal, a significant number of downtowns may no longer have the potential for recruiting the GAFO retail chains, though there still is significant local market support for this type of retail activity. In such situations, the best path for realizing the GAFO growth potential is through the recruitment of competent small merchants. They, in turn, are unlikely to afford the rents sought for newly constructed retail spaces. In fact, they may not require such vanilla box spaces to succeed. Frequently, they probably would be best served by leasing a storefront in a competitive downtown location that is in good condition and then making such additional improvements deemed advantageous and affordable. Under such a scenario, more downtown housing will still remain highly beneficial for the downtown, but without pedestrian friendly storefronts on the ground floor, a large residential building on the main commercial street can be a pedestrian dead spot. Perhaps, such a residential building then would be best located around the corner and down a side street? In other words, in numerous downtowns, the mixed-use project model may no longer be either viable or optimal.

Offices. Under the new normal, the character of office development also appears to be changing in very significant ways because of the Great Recession and alterations in the ways people work and use office spaces. The demand for space is being reduced by large corporations, forced to cut costs by the Great Recession and then taking a much more rigorous assessment of how much office space they actually need and the rents they pay for it. As a result, they are re-signing leases for or moving into smaller office spaces. Consequently, as a 2011 article in CoStar’s e-newsletter reported, a symposium of office development experts convened by BOMA found that we now “…have roughly all the office space (in aggregate) that we will need” (38). One expert has suggested that the industry should entertain the possibility of a 20% decrease in office space demand, because, given the current trend, that may well be the long-term implication for office building landlords and developers (39).

There is little doubt that, as a result of the new corporate leasing scrutiny, the ratio of leased space per office worker (SF/worker) has dropped significantly – employees are working in smaller offices with reduced spaces for themselves. The question is by how much? The answer is critical to assessing the scale of the downturn in demand. In discussions about it neither the previous ratio that is being used as a reference nor the current ratio are well evidenced. For example, one observer claims that that the ratio at some unspecified time in the last decade was 250 SF/worker and has dropped now to 185 SF/worker (40). It seems more likely that the 250 SF ratio was applicable to big city corporate back office operations (which have long since left our major city centers) back in the years of rapid office growth during the1980s. I believe a 200 SF/worker ratio was the more common yardstick in the 2000s. Furthermore, a 1994 Arthur Anderson report then claimed that the ratio would soon be 175 SF/worker (41). Also, there has long been a difference in space utilization between downtown and suburban locations. Finally, another observer of the current scene noted that some high tech firms in CA had seven workers per 1,000 SF, which translates into an 143 SF/worker ratio (42).

The demand for office space is impacted not only by the growth in the types of jobs that require office space, but in how the office space is used because this will influence on how much space is needed per worker. As one participant at the BOMA symposium argued:

“But to remain competitive, the existing stock of commercial real estate must be reconfigured to keep pace with an increasingly mobile, Internet-connected workforce; ongoing changes in technology, and to support the way companies are structuring their staffs to foster more collaboration and efficiency, while also addressing the values and attitudes of new generations of workers “(43).

Increased telecommuting, flexible work schedules, the untethering of workers from desks to enhance collaboration and increase face-to-face client contacts have combined to increase employee density in major office buildings and reduce the demand for office space. For today’s office worker, according to another of the BOMA symposium experts, the ideal situation may be: “(W)here you go into the office two or three days per week and work remotely the other days, which reduces our carbon footprint by 20% – 40% and has a huge impact on improved quality of life “(44).

Many of these changes in the ways office employees do their work and utilize space have been influenced by patterns developed in high tech firms such as Google and are preferred by the growing number of Millennials and the creative knowledge workers among them.

The potential negative impacts of the new normal’s altered demand for office space on development are:

Rather than expanding by millions of square feet in the future, experts expect the total office market size in the U.S. to remain approximately at its current size, with significant new construction to replace obsolete buildings. Fewer new downtown office buildings will be built”
Existing downtown office buildings that are not configured to meet the new work habits of office workers will have languishing leasing efforts. A lot of existing downtown office buildings may have to be renovated if they are to be competitive
Downtown retailers and eateries will have a significantly reduced office worker market because the telecommuters and flex-timers will spend much less time in the district.

However, there is a potential upside for downtowns that can provide “a dynamic, experience-rich environment,” i.e., strong CSD functions. As the CoStar article notes:

“The lesson for companies (and the investors and building owners who want to have them as tenants) is that younger workers prefer to work in a more dynamic, experience-rich environment, such as an urban- type setting offering different entertainment, cultural and transportation options (45).”

Downtowns with strong CSD functions will consequently continue to have a distinct advantage in a highly competitive office market, while listless downtowns will probably be weaker competitors than ever.

Coworking spaces are an interesting example of how the quantitative and qualitative changes in the ways people work and use office spaces also offer growth paths for downtowns — and not just for the very large ones. These shared spaces help fill the essential needs of entrepreneurs and freelancers to build their professional networks and collaborate with other small businesspeople. These shared spaces average about 6,000SF and provide such features as: desks (“hot” and dedicated), private offices, conference room(s), kitchen, lounge, Wi-Fi Internet connections, 24/7 office access, and equipment for printing, binding, faxing, scanning, photocopying, etc. Very importantly, the spaces are also programmed for: “networking events, collaboration and mentoring, one-on-one assistance, business planning topics, business management topics, B2B, B2C, B2G activities and technical skills training (46). They also can provide connections to such technical assistance providers for small firms as SCORE, SBDCs, local government agencies, local university programs, etc.

The clients for coworking spaces are most likely to be active in occupations associated with Richard Florida’s creative class construct such as: computer and mathematical; life, physical and social science; architecture and engineering; education, training and library; arts, design, entertainment, sports, media; business and financial operations; legal; healthcare practitioners and techs; high-end sales and sales management.

An international survey of coworkers by Deskmag found that, as might be expected, 85% of the coworking spaces are in cities having populations of 100,000+. The large city spaces are near colleges or universities and have other coworker spaces within their market area. The coworker spaces in the smaller communities tend to be smaller, but the desk utilization rates are similar to those of the spaces in larger cities. However, the small city coworkers are older and wealthier than their large city brethren. Also, as might be expected, the spaces in smaller cities draw from a relatively larger area in which there are no other coworker spaces. Coworker spaces apparently do no conflict, but complement with the use of home offices, probably by providing the opportunities for vital business related social interactions that working alone at home cannot: ”Nine out of ten coworkers also work outside their coworking space, regardless of the size of their city. The most popular alternative is still the home office (around 80% for both groups” (47).

DANTH, Inc., in a recent unpublished analysis, reviewed 20 suburban communities in the New York-NJ metro area and concluded that coworker spaces would be most viable towns that are true commercial centers, and they are likely to be county seats.

The Deskmag survey also found another very important difference between the coworkers in small and large communities: “In towns, one in three coworkers reported using coworking spaces to establish or grow a business. In cities, they number only one in ten.” In larger cities, coworkers are more likely to be freelancers and they do report that using the coworker spaces does increase their income. This is important because:

Coworker spaces may help bolster a community’s or county’s economic well being by helping freelancers get more assignments and increase their household incomes. A 2010 report by Intuit on the 20 trends that will shape the current decade predicted a strong increase in the size of our “contingent workforce” – of which freelancers and individual subcontractors are substantial components – will grow from about 25% to 30% of the workforce in 2010 to about 40% in 2020. Also, this study reported that 80% of our major corporations plan to substantially increase their use of contingent workers (48). Freelancers have unsteady incomes and no benefits and usually make less annually than someone with a full time position doing comparable work. As a result, the growth in the contingent workforce could have a significant weakening effect on many communities as a significant number of their residents are shifted into the more unstable and lower paying contingent employment. To the degree that coworker spaces can help freelancers get more projects and increase their incomes, they can be a useful tool for ameliorating this situation and thereby helping the community to maintain its economic well-being
Coworker spaces also may help many communities in the 20,000 to 100,000-population range to generate the jobs they are looking for. Besides their own jobs, freelancers are not job creators – they are self-employed, not employers. However, as is well known within the economic development community, small growing firms are our job creators. Furthermore, as they grow so does their demand for office or industrial spaces. Coworker spaces in these towns attract firms that want to grow and apparently do help many of them to achieve that objective.

Housing. Besides significantly reducing both demand for and the construction of housing, the Great Recession also influenced downtown projects by encouraging a shift in consumer interest from purchased units to rentals. In some parts of the country, this shift had started prior to the recession, but the strong downturn really deepened and widened the scope of this trend. Some housing experts expect it to diminish when the economy recovers; others see it as being with us for a very long time as our housing market increasingly looks like those found in Western Europe (49).

Housing in and very near to many of our downtowns is now for the affluent and financially comfortable. For example, in September of 2013, the average rent for an apartment in Manhattan was estimated at $3,862/mo; the median rent was $3,087 (50). To not be “rent burdened,” i.e., not have to spend more than 30% for the median rent, a household would need an annual income of $123,480. Googling “high downtown rents” brings up many webpages about high downtown rents and condo/coop prices in many of our larger cities. My field observations suggest that the same trend, if not to the same financial heights, is present in many of our medium-sized cities and suburban communities. While the presence of the affluent and financially comfortable is a strong asset for any downtown, the associated high cost of housing means that affordable housing has become an issue, not just for the poor, but also for the middle-income household members who are often skilled and essential workers for downtown businesses.

On the positive side, this has lead to the diversion of middle-income demand to neighborhoods that were formerly decayed and housing lower income residents and the revitalization of those neighborhoods. Some have the housing stock that makes their rehabilitation understandable, while others do not. All, however, have comparatively short commutes to the CBD that are often facilitated by easy access to a robust public transit system.

One result in both the downtown and the desirable close-in neighborhoods is the repurposing of underutilized schools, churches, office buildings, etc. for residential uses. Indeed, a recent report by the CoStar Group claims that: “more than half of office space removed from inventory returns to the market as residential” (51).

Another response to this situation, especially in cities such as Atlanta, Cincinnati, Denver, Pittsburgh, Seattle, St. Louis and Washington D.C., where the share of single person households exceeds 40%, may be the development of mini apartments that have about 350 SF. The mini apartments are not unusual in Tokyo and many European cities, and they have recently appeared in such American cities as Boston, Chicago, New York, Providence and San Francisco (52).

The popularity of downtown housing is also creating a challenge that takes form in lots of tourist residential owners who are only present for small portions of the year, even during the local tourists season, if there is one. In one Florida downtown I visited, most of the units in the district’s large residential buildings I walked by were dark. Local economic development officials lamented that this was the normal situation and one that they very much wanted to change.

UP NEXT: My next article in this series will be on the challenges facing downtown entertainment niches.

Endnotes

19.See: https://www.ndavidmilder.com/downtown-revitalization/the-deliberate-consumer
20.Elizabeth Warren and Amelia Warren Tyagi. The two income trap: Why middle-class parents are going broke. Basic Books, 2004.
21.Ian MacKenzie, Chris Meyer, and Steve Noble, “How retailers can keep up with consumers,” Insights & Publications, McKinsey & Company, October 2013 http://www.mckinsey.com/insights/consumer_and_retail/how_retailers_can_keep_up_with_consumers
22.See http://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf for current e-commerce stats
23.Steve Noble, Amy Guggenheim Shenkan, Christiana Shi, “The promise of multichannel retailing,” McKinsey Quarterly, October 2009.
24. See endnote 21. Two of these market segments are not new: the Boomers have been impacting retail for decades and DANTH was dealing with very large Hispanic markets back in the 1990s in the Bronx, West New York NJ and Elizabeth NJ. Back in the 1980s and 1990s.
25. See endnote 21
26.Cited in: https://www.ndavidmilder.com/2012/10/the-new-normal-requires-more-dynamically-managed-downtown-organizations.
27.See endnote 26
28. Stephanie Clifford, “Street’s Sunny Side Costs Retailers More in Rent” New York Times, September 24, 2013 ttp://www.nytimes.com/2013/09/25/realestate/commercial/streets-sunny-side-costs-retailers-more-in-rent.html
29. N. David Milder, “Nail, Hair and Skin Salons: Bane or Boon?” Downtown Idea Exchange. October 2005
30.See endnote 28
31. N. David Milder. E-Marketing: How EDOs Can Help Independent Downtown Merchants Engage Effectively in E-Marketing. Economic Development Journal (IEDC), Summer 2013, pp. 34-40.
32. See, for example, Center for Neighborhood Technologies, “Center for Transit-Oriented Development,” http://www.cnt.org/tcd/projects/ctod/
33. Christopher Leinberger, “A Model for Growth: Walkable Urbanism,” Urban Land, September/October, 2010, http://www.urbanland.uli.org/Articles/2010/SeptOct/Leinberger
34. Center for Neighborhood Technologies, “The New Real Estate Mantra: Location Near Public Transportation,” March 2013,    http://www.cnt.org/resources/the-new-real-estate-mantra/
35. See endnote 34
36. Christopher B. Leinberger, “Financing Walkable Urbane Projects,” Urban Land, January 2007 http://www.chrisleinberger.com/docs/By_CL/Financing_Walkability_0107.pdf
37. Rebecca Cooper, “Arlington looks to ease up on retail rules,” Washington Business Journal, Sep 26, 2013, http://www.bizjournals.com/washington/blog/top-shelf/2013/09/arlington-looks-to-ease-up-on-retail.html?ana=RSS&s=article_search&page=all
38. Tim Trainor, “Do We Need Any More Office Space? Experts examine far-reaching impact from changing demographics and ever-pervasive technology on the workplace of the future.” CoStar Group. http://www.costar.com/News/Article/Will-We-Need-Any-More-Office-Space-/134483?ref=100&iid=261&cid=DC6077B43E67ACADB224FF6D0AF89AB6; I have taken much of this section from what I wrote in 2012: N. David Milder, “Office Development — We now have all the office space we need,” https://www.ndavidmilder.com/2012/01/office-development-we-now-have-all-the-office-space-we-need.html
39. Mark Heschmeyer, “Changing Office Trends Hold Major Implications for Future Office Demand: pioneered by tech firms in California, communal workspace model becoming more mainstream among big office firms.” CoStar Group. March 13, 2013. http://www.costar.com/News/Article/Changing-Office-Trends-Hold-Major-Implications-for-Future-Office-Demand/146580
40. See endnote 39
41. Arthur Anderson. “Draft Report: City of White Plains Comprehensive Plan, Economic Futures: The Alternatives.” 1994 – p.4
42. See endnote 39
43. See endnote 38
44. See endnote 38
45. See endnote 38
46. Place Dynamics, “Igniting an Idea:THE CREATIVE SPARK,” www.placedynamics.com, p.12. This is one of the best sources on this topic and I thank Mike Stumpf for so graciously sharing it with me.
47. “Coworking in Big Cities vs. Small Towns,” Deskmag, January 17, 2011 http://www.deskmag.com/en/big-city-vs-small-town-coworking-182
48. Intuit, “Intuit 2020 Report?:Twenty Trends That Will Shape The Next Decade”    October 2010, http://http-download.intuit.com/http.intuit/CMO/intuit/futureofsmallbusiness/intuit_2020_report.pdf
49. Stacy Proebstle December 30, 2011   More NJ Families Will Rent Instead Of Own,” (Audio), http://nj1015.com/more-nj-families-will-rent-instead-of-own-audio/
50. See: http://www.elliman.com/pdf/57c5541a5c29aef8d1914567e1af02b593b23069
51. Randyl Drummer; Developers Increasingly Find It Can Pay To Convert Office Buildings Into Apartments and Condos: More than Half of Office Space Removed from Inventory Returns To the Market as Residential, October 29, 2013, CoStar Group Newsletter, http://www.costar.com/News/Article/Developers-Increasingly-Find-It-Can-Pay-To-Convert-Office-Buildings-Into-Apartments-and-Condos/153853?ref=100&iid=361&cid=DC6077B43E67ACADB224FF6D0AF89AB6
52. Wendy Koch, “Mini-apartments are the next big thing in U.S. cities,” USA TODAY, August 1, 2013. http://www.usatoday.com/story/news/nation/2013/07/30/tiny-apartments-apodments-catch-on-us-cities/2580179/

Small Downtowns Succeed Not By Growing A Lot Bigger, But By Becoming A Lot Better

Posted on August 8, 2013 by DANTH

Posted by N. David Milder

Introduction

My work, a few years ago, on two small towns with populations under 2,800 has reinforced my feeling that our understanding of what makes a downtown successful is dominated by a paradigm that, while suitable for large districts, just does not seem to be as applicable to small or medium-sized downtowns. I fear that attempts to impose that paradigm on smaller downtowns have led to many dreadful revitalization strategies and plans. In this article I will work toward formulating my view of what the paradigm for a successful small downtown might be, hoping this exercise will stimulate other economic and community development professionals to follow suit.

The Successful Large Downtown Paradigm

Successful large downtowns, according to my understanding of the dominant paradigm, which I described in my 1987 article on downtown crime, have the following characteristics (1):

High Multi-functionality. They are multi-functional with a mix of attractive retail shops, restaurants, bars, coffee houses, professional offices, corporate offices, government offices, hospitals, courts, rail and bus stations, hair and nail salons, gyms and spas, museums, cinemas, concert halls, theaters, public spaces, residences, hotels, residential buildings, etc.
High Density. These functions are clustered in a dense, compact area and a lot of the development is vertical
High Pedestrian Traffic. The multi-functionality sparks a lot of multi-purpose visits and pedestrian trips. The district’s density and compactness help make them comparatively short and easy
High Energy and Fast Pace. The density and wide choice of activity venues combined with the strong pedestrian flows, stimulates a sense of high activity and fast pace that at times is even deemed electric or exciting.

Trying to Apply It to a Small Downtown

Size is the defining difference between large and small downtowns. Since multi-functionality and density have almost definitional associations with size, they may be expected to be lower in smaller downtowns. Similarly, pedestrian traffic may be expected to be much lower in smaller downtowns because of reduced multi-functionality and density as well as probably smaller trade area populations. Levels of energy and pace can also be expected to be low in small downtown since they are dependent on multi-functionality, density and pedestrian traffic. However, saying all that leaves little or no basis for explaining why a small downtown is successful and not just small: it has, almost by definition, far less density, multi-functionality, pedestrian traffic, far less energy and a much slower pace that the largest downtowns. What is it then that makes a small downtown successful? Applying or trying to tailor the large downtown paradigm to the small certainly does not seem to get anywhere meaningful.

The Importance of an Attractive Downtown Setting with Fewer People

Searching for a better approach to understanding the major characteristics of a successful small downtown, I happened upon the results of a large national survey done for the National Association of Realtors that showed 18% of the respondents preferred living in small towns and 22% preferred living in rural areas (2). That means that very significant portions of our population prefer living in towns and areas that are not densely populated or developed. They do not like crowds or living close to other people. To me, these facts suggest that whatever the economic needs of a small downtown, if they are met with too much population growth and increased development density, then the downtown probably will not be considered a success in the eyes of its local user population. Of course, too much density and growth can also be of great concern to large downtown user populations. Where they are very likely to differ is in the definitions of how much is “too much.”

The Importance of an Attractive Downtown Setting with Low Energy and Slow Pace

Why else do people prefer the less populated towns and areas?

The streets of the smaller downtowns I like and want to return to have a charm and slower pace of activity than the large downtowns I enjoy. Visiting them I do not see the high volumes of pedestrian traffic or feel the frenetic pace and electric energy that I often get on streets of Manhattan, Chicago, Boston, Philadelphia, London or Paris.

Instead –leaving festivals and special events aside– the setting is more languid, devoid of passing platoons of pedestrians, while filled with charmingly attractive buildings, shops, landscapes and public spaces. It is easy to walk on uncrowded sidewalks and safe to cross the streets/roads. There is always at least one good and popular place to eat and drink. Finally, the people we encounter in the shops, restaurants and public spaces are friendly – and often interesting characters. In these likeable small downtowns we feel comfortable and relaxed, yet entertained and/or amused.

Moreover, my experience suggests I am far from alone in having this viewpoint. Most of the reasons I’ve heard people give for visiting a small town or a rural area are on the order of “getting away from it all,” or enjoying a slower and more relaxed pace in a scenic setting. I do not think many people go to a small downtown in search of a lot of “action!”

Furthermore, my numerous, if admittedly non-systematic conversations over the years with residents in the small towns I have either visited or lived in, suggests that they highly value the low energy and slow pace of the communities in which they reside.

Energy and pace can be thought of as continuums with strong and weak manifestations that are displayed in inverse patterns in large and small downtowns. Though larger downtowns are better known for their fast pace and the sense of excitement that their users enjoy, they also often have charming public retreats where people can go to engage in a more comfortable, languid and relaxed pace. For example, in New York City are the famous and adored Central Park and 250 much smaller “pocket parks,” among which Paley Park is perhaps the best known. Conversely, we sometimes find an air of excitement and a faster pace in these small downtowns, not on the sidewalks, but in a public space and/or inside a bar or restaurant that functions as the community’s “village well,” its gathering spot.

Walkability

My field visits across the country, conducted over many years, suggest that:

In many small and medium-sized downtowns, pedestrian counts may be just a few hundred, or even far less, per day. Without doubt, even if these downtowns are completely revitalized, they can never potentially reach the pedestrian counts or waves of walking platoons that can be attained in denser urban downtowns. (Tourist downtowns might be exceptions.) Density provides an upper bound on a district’s potential pedestrian traffic, but does not in and of itself guarantee the achievement of those levels. This was amply demonstrated by the barren sidewalks of too many downtowns in the 1980s and 1990s that used office development as their engine of economic revitalization
In many small and medium -sized communities, even if all the shops were attractive and interesting, there still would not be enough of them to generate lengthy pedestrian trips or a lot of strolling and window-shopping. As Bill Ryan, a well-know downtown analyst at UWEX’s Center for Community and Economic Development, has noted: ”Most rural small downtowns are anchored by a c-store, a couple of bars and a couple of restaurants, beauty salon, accounting/tax/insurance, and other services. Not much to stroll through” (3)
Many of the successful stores I have observed in these small downtowns, even though they may be relatively small, function as retail destinations – they are not “found” by shoppers strolling through town. Instead, shoppers know them and go directly to them, usually with a specific type of purchase in mind. The pedestrian parts of their shopping trips are often largely confined to walks from and back to their automobiles. This importance of the automobile should not be surprising in rural environments where 50-minute auto trips to jobs and regional shopping centers are normal and where getting to local schools, churches, friends and neighbors usually require the use of a car.

Kaid Benfield’s makes an important distinction between walkability and density. (4) Following that line of thought, it seems to me that density can facilitate and stimulate pedestrian traffic, but walkability plainly entails other people friendly dimensions such as the ease, pleasantness and safety of walking. Walkability is required by downtowns large and small, dense or less dense, whether the pedestrian flow is large or small.

Economic Viability: The Need for a “Right Fit” Strategy and Its Challenges

Any successful downtown will need to be economically healthy. Economic strength generally does correlate with variables connected to size. Consequently, small downtowns are caught in a conundrum: they need enough economic strength to be attractive, viable and successful, but not so much that it threatens the small town and small downtown characteristics that attract its user population. This requires a kind of careful calibration that meshes easily into a “right fit” type of growth strategy.

This means that there is probably some opportunity for growth, but it will be limited in terms of the new buildings and their associated roads, employees and residents.

Of probable greater importance is the improvement of the attractiveness and functionality of existing downtown spaces, making current merchants better business operators and recruiting new capable business operators. This will probably entail:

Stronger brick and mortar convenience operations
Local merchants learning to be more e-commerce capable
Looking for and realizing opportunities to recruit or grow local e-merchants who can sell in a national or international e-marketplace.

Here are two firms that sell to historical reenactors, movie companies, etc., that are good examples of firms located in small towns that have Internet and catalog sales that are far above what their trade areas could support:

Jas. Townsend and Son is located in Pierceton, Indiana, a town with a population in 2010 of 1,095. They help “historical reenactors, movie makers, theatrical companies, pirates, and regular people find items including clothing, tents, books, knives, tomahawks, oak barrels and lots of other goods appropriate for 1750 to 1840 – especially the American Revolutionary War and War of 1812.”
Schipperfabrik is located in Columbus, WI, population 4,991. It “is the world’s largest and most diverse manufacturer and supplier of WW1 Uniforms, equipment and insignia. We pride ourselves on our world class, museum grade reproductions, all made based on original specifications and original pieces.”

Of note is the fact that both firms manufacture much of the merchandise they sell online. While retail and restaurants often take center stage in small downtown revitalization efforts, firms providing blue collar jobs have usually been the economic cogs of small towns. It’s time for more attention to be paid to them.

Creating and implementing an effective right fit economic development strategy will probably be very challenging tasks for small downtowns. These tasks will require an array of sophisticated skills in both planning and execution as well as a level of financial resources that are well beyond what most small towns can afford. This is further evidence that, as Andrew Dane and I argued in a previous article, revitalizing small town downtowns can be very difficult because the challenges they face are often surprisingly complex, while they have meager financial and personnel resources to spend on their resolution or amelioration. (5)

My Take Aways

Based on the above analysis, I’ve come to the following take aways from my reflections about successful small downtowns:

There are no linear relationships between greater density, more multi-functionality and higher pedestrian counts and having a successful downtown. Small downtowns succeed not by getting a lot bigger, but by becoming a lot better
Critical to the success of a small downtown is its ability to comply with its user population’s preferences for attractive places with relatively few people, lower energy levels and a relaxed activity pace
Successful revitalizations of small downtowns may strengthen and increase the densities of various economic functions and its consequent foot traffic, but not to anywhere near dense urban levels and, most importantly, not to where the downtown’s relaxed and languid pace of activity is significantly altered or endangered
This is the nub of the challenge in small downtown revitalization efforts: how to right fit increased economic activities and development so that they meaningfully strengthen the downtown, while not violating all the things that its user population values about it, e.g., its charming appearance, slower pace, lower energy, and uncrowded ways of doing things
In small communities, strong pedestrian activity is neither to be found nor valued in the local culture, nor easy to generate. A walker friendly downtown is still needed, not to stimulate highly increased pedestrian flows, but to maintain the downtown’s easy and relaxed pace of activities
Of course, a small downtown might indeed become much stronger economically through a lot of growth, but then the question of whether it is still small is likely to emerge… and generate political conflicts

I do not think I have provided here the full answer to the question of how, besides the dimensions associated with size, successful small downtowns differ from successful large downtowns, but I feel confident that I am on the right road.

Acknowledgements: I would like to thank Mark Waterhouse, Bill Ryan, Andrew Dane and Laura Krakoff for their helpful comments and edits on an earlier draft of this article.

Endnotes

N. David Milder, “Crime and Downtown Revitalization,” Urban Land, Sept. 1987, pp. 16-19 DT Crime Article
Belden Russonello & Stewart LLC, “The 2011 Community Preference Survey: What Americans are looking for when deciding where to live”, Analysis of a survey of 2,071 American adults nationally conducted for the National Association of Realtors. March 2011, p. 17
In a telephone conversation and comments on an earlier draft of this article. See also: Bill Ryan, Beverly Stencel, and Jangik Jin, “Retail and Service Business Mix Analysis of Wisconsin’s Downtowns,” Center for Community & Economic Development, University of Wisconsin – Extension Staff Paper, Sept. 1, 2010
Kaid Benfield’s Blog, “For walkable cities, it’s not about the density – it’s about finding the right kind of density,” Posted March 4, 2013 on Green Enterprise, Living Sustainably
N. David Milder and Andrew Dane, “Some Thoughts on the Economic Revitalization of Small Town Downtowns,” The Downtown Curmudgeon Blog, Blog article link

So…Surprise! You have a lot of suburban creatives…

Posted on July 3, 2013 by DANTH

Posted by N. David Milder

Introduction. Within the economic development community considerable attention has been focused on young, hip knowledge workers and artists. These young hipsters are part of what Richard Florida has termed the Creative Class. Nationally, they have been drawn in recent years to very dense urban areas that they have helped revitalize, from both residential and business perspectives. It is for these reasons that many economic development organization (EDO) leaders have based their revitalization strategies and business marketing programs on the attraction and growth of these “young creatives.”

However, Florida’s definition of the creative class is in terms of occupations, not age. The occupations Florida uses to define the creative class are from the Standard Occupational Classification (SOC):

Super Creative Core: Computer & mathematical; life, physical & social science; architecture and engineering; education, training and library; arts, design, entertainment, sports, media
Creative Professionals: Management occupations; business & financial operations; legal; healthcare practitioners & techs; high-end sales & sales management

chart

Going unnoticed –as is probably the case in many of our nation’s large metro areas – is the fact that the heavily suburban counties in Northern NJ also have a lot of workers in these creative class occupations. For example, in 2010, Bergen County had 148,150; Middlesex 141,550; Mercer 112,050; Monmouth 86,350; Somerset 74,600 and Morris 103,500 (see table above). Importantly, many creatives also live in these counties: e.g., in 20011 the numbers of resident creatives were: Bergen 196,892, Middlesex 163,910, Mercer 74,541, Monmouth 125,545, Somerset 80,624 and Morris 120,035. As a result of career stages and geographic location, these “suburban creatives” are older, more likely to have families, have higher earnings and higher net worths, and live in single-family homes than the urban hipsters. Moreover, the suburban creatives are equally, if not more, creative and entrepreneurial. Significantly, they do not have to be attracted to these counties — they are already there. They account for a significant part of the healthy and very desirable residential areas in these counties. Also, the downtowns in these counties that have been able to respond to the suburban creatives’ lifestyles and spending patterns have had successful revitalizations: e.g., Englewood, Red Bank, Ridgewood, Westfield, Morristown, etc.

The presence of the creatives means greater job growth. DANTH’s analysis shows that in the 14 Northern NJ counties that Regional Plan Association includes in the NJ-NY-CT Metropolitan Region, there is a correlation of .81 between the number of creatives in a county’s workforce and the number of new jobs projected between 2010 to 2020 by the state’s Dept. of Labor; the correlation between creatives who live in the counties and their job growth was .92. Looking just at the eight heavily suburban counties of Bergen, Passaic, Middlesex, Mercer, Monmouth, Somerset, Morris and Ocean the respective correlations are .84 and .93. In the 14 counties, there is a strong association, .91, between the number of creatives who live in a county and the number of creatives who are in a county’s workforce.

Economic Strategy and Program Implications. Many EDOs in Northern NJ, be they EDCs, SIDs or municipal or county departments, may want to alter their strategic thinking, marketing and recruitment programs to better leverage their considerable creative manpower assets.

Because economic development in these counties is heavily viewed through retail and office development lenses, one area in which these assets have been minimally leveraged by EDOs is the creation and growth of small businesses operated by creatives. DANTH’s trends analysis suggests that the creatives can be expected to be increasingly entrepreneurial in coming years:

Nationally, the workforce is becoming increasingly composed of “contingent” workers, often creative freelancers. One estimate, by Intuit, sees as much as 40% of 2020’s workforce being contingent. Many young creatives have long followed the freelancer path at the beginning of their careers. Older creatives, who are either laid off or seeking career changes, have also followed this path later in their careers. We can expect more of them to do so in the future.
Many boomers are changing their careers as they enter the pre-retirement 55-64 age group, which has a high rate of entrepreneurialism compared to other age groups
Retired boomers are increasingly starting new careers because they still want to be active and/or they need the income.

The young creatives and their more mature colleagues bring different asset and need sets to starting a business in terms of training, experience, the size and reach of their professional social networks, and their financial resources. Nevertheless, both groups will:

Most probably be inexperienced as entrepreneurs and may need to acquire skills in marketing, bookkeeping, business planning, etc.
Need to raise capital (mostly new firms with employees)
Possibly need to hire employees (the non-freelancers)
Need attractive and convenient places to meet and exchange ideas with other new entrepreneurs and potential clients/customers
Need commercial spaces for their new businesses (the non-home office operations)
Prefer business locations where these needs can be maximized, especially those that are really easy to get to on foot or by car, bus or rail.

The range and depth of these needs will differ mostly not by age, but, as indicated above, between those who are freelancers with no employees and those who are creating firms, usually incorporated, with employees.

Given the relative dispersion in the suburban counties, their stronger downtowns, often their county seats, (e.g., Freehold, Morristown, Somerville, New Brunswick) may be the best geographic locations for meeting these needs. Their existing economic agglomeration offers a density of businesses, government offices, commercial spaces, professional and financial services, restaurants, coffee houses and watering holes in a reasonably walkable area. But, to meet the most pressing needs of the new and budding entrepreneurs, these downtowns may have to develop a more specialized “entrepreneurial infrastructure.” By doing so, the downtown itself becomes a kind of informal incubator/accelerator. Some possible components of such an infrastructure are:

A cadre of technical assistance/entrepreneurship advisors available at nearby colleges and universities or at a SBA Small Business Development Center or at local business consulting firms or through organizations such as SCORE. Helpful would be a mechanism to easily link the entrepreneurs to the types of advisors they need
Besides commercial banks, SBA, and personal investors, these new and developing companies would benefit from having access to other sources of capital such as angel investors, venture capitalists and crowdfunding. Here again, a mechanism to help link the entrepreneurs to these various types of investors would be helpful
Coworker spaces are finding increasing acceptance across the nation. They can be used by freelancers, new companies or small existing companies. They can function as a kind of “business incubator lite” or provide some business acceleration functions for older firms
A full blown business incubator and/or a business accelerator
A variety of relatively small and affordable spaces for a) freelancers who do not want to work at home or in a coworker space and b) firms that either are too large for or also do not want to be in a coworker space. These spaces can be in the downtown or elsewhere within a reasonable drive of the downtown
A mechanism to help link freelancers to project opportunities and where they can get things like health insurance
A permissions and approvals process that is truly timely and affordable for new firms be they startups or new move-ins. Most jurisdictions that think they have a good process upon close inspection are shown to need significant improvements.

(Note: this list is not meant to be exhaustive, but suggestive.)

Some of these components or parts of them may already exist in and near the downtown. Others will have to be created whole or in part.

Some pilot organization is needed to:

Design the downtown’s entrepreneurial infrastructure in terms of its components. This effort should bring into play the major local government agencies having economic development responsibilities, relevant EDCs and any downtown SIDS/BIDs. Most importantly it also should bring to the table major landlords and experienced businesspeople who live and/or work in the county, especially those who are experienced business investors or well networked with those who are
Create an implementation plan that would cover how it would be financed and who would do what
Create an organization to manage this infrastructure or designate an existing organization to do so.

Downtown and County Benefits. Some potential benefits of such a program are:
For a downtown:

Better business retention through the strengthening of some of its small businesses: helping some survive and others to grow in the downtown.
A stronger cadre of freelancers with an increased ability to afford needed downtown goods, services and amenities
Significantly more small businesses wanting to locate in the downtown
Significantly more small businesses wanting to use the downtown’s goods, services and amenities
The development of an image of the downtown as a very business friendly place that is exciting because it is savvy about what small firms need to grow and succeed — and it provides those things
The consequent greater attractiveness of the downtown as a business location to other and even larger firms, with associated impacts on commercial rents, the assessed values of commercial buildings, property taxes, jobs, etc.

For its county:

A program to help increase the success rate of the county’s growing number of county residents who become new entrepreneurs, be they freelancers or incorporated
A program to help more of the county’s existing small businesses to grow, with commensurate job growth and need for additional commercial spaces
A program that will spawn new firms with new jobs and a need for additional spaces
The ability to develop a business marketing program that puts the “creatives” spin on the county’s skilled workforce and leverages its small business development advantages to attract older and more substantial firms.

So You Don’t Have a Lot of Hip Young Professionals…

Posted on May 29, 2013 by DANTH

Posted by N. David Milder

Introduction

For over a decade Richard Florida and Joel Kotkin have dueled over the proper way to analyze regional economic growth and their conflicting political and urban/ suburban preferences. They do agree, however, on one very basic and critical point: in today’s world, economic growth is very dependent on knowledge and geographically will tend to flow to areas where the knowledge workers cluster. (1)

Unfortunately, many within the economic development community have come to have a disproportionate amount of focus on and regard for one type of knowledge worker, the young hip urban professional. Too often communities feel unable to secure their economic futures because they have few young hip professionals or are led into futile attempts to attract them. Frequently overlooked are other assets that these young hipster deficient communities do have and that could be leveraged into economic growth.

Attention to young urban professionals within the economic development community predates the Florida-Kotkin “debates,” emerging in the 1980s. Once called “yuppies,” by the 1990s that term had became pejorative and worn out because of the segment’s behaviors and luxurious lifestyle. Later, around 2000, Richard Florida came along with his creative class theory that helped refocus attention on young knowledge workers and artists whose presence and behaviors shaped the hip, open-minded and welcoming urban communities that are conducive to growing creative class clusters. (2) About the same time downtown real estate developers and retailers had discovered the economic clout of these young well-educated urbanites, whom some referred to revealingly as “walking wallets.” Some developers of downtown residential buildings even had them specifically designed to suit this market segment in terms of apartment layouts, amenities and leasing policies. (3)

Googling “the importance of hip young professionals in economic development” brings up a host of articles that proclaim the economic significance of having a throng of young professionals in your community. For example, an article in the Richmond Times Dispatch stated:

“Based on lessons learned from “urban hub dynamics,” the long-term economic prosperity of metropolitan areas will be based, in part, on how quickly a region can become recognized as one of these preferred places for young professionals to live and work today.” (4)

However, there has been a well-known unevenness in the ability of metro areas to grow and/or attract young, hip knowledge workers. Consequently, many cities that did not have a lot of young professionals or that were losing them to hipper cities, have taken on action programs specifically aimed at wooing them, e.g., Cincinnati, Pittsburgh, Richmond, Memphis, Tampa, Indianapolis, Baton Rouge, St. Louis, Milwaukee, Tallahassee, and Fresno. (5).

Even within young professional rich metro areas, the geographic distribution of the young professionals usually is lopsided, taking on a split that leaves the suburbs well behind the urban cores. Does that mean that these suburban communities and their downtowns are doomed economically because of their young professionals deficits? For them to try to replicate big city hip neighborhoods on a much smaller scale in and around their downtown areas may be an appealing strategy, though one of often questionable viability. Consider Richard Florida’s explanation of why young professionals are drawn to urban locations:

“Urban living provides them with thicker job and dating markets, opportunities to share rent with roommates, and plenty of things to do in their off hours, from bar-hopping to attending graduate school.” (6)

Suburban communities that want to erase a young professionals deficit need to have sufficient and appropriate “thicknesses” and should ask:

Are they basically bedroom communities with a supportive downtown or are their downtowns regional commercial centers?
Can they generate enough knowledge worker employment opportunities nearby?
Can they provide a density of entertainment/leisure activity options that approaches those of large urban neighborhoods?
Can they reach a young professional critical population mass that can attract other young professionals?
Can they provide affordable and attractive downtown rental housing and will the landlords do leases when roommates are involved?

Perhaps suburban communities and metro areas with young professional deficits should have a more realistic perspective on the economic advantages of young professional populations and then take an in-depth look at other assets that they do have for leveraging economic growth.

Putting Young Professionals in Perspective as Economic Growth Assets

Discussions of young professionals often conjure up images of brilliant young entrepreneurs such as Bill Gates, Steve Jobs, Larry Page, Sergey Brin and Mark Zuckerberg, who in their 20s founded huge high technology companies in a garage, a dorm room or a makeshift office. (7) These young business titans seem to demonstrate the superior entrepreneurship, high tech know-how and inventiveness of young professionals, an image that is also reinforced by reports of slower adoption of digital technologies by older age cohorts. (8)

Entrepreneurship. Some very credible research done for the Kauffman Foundation clearly shows that people in the 20-34 age group are not the most entrepreneurial, but the least. For example, a 2009 report by Dane Stangler found that:

“Contrary to popularly held assumptions, it turns out that over the past decade or so, the highest rate of entrepreneurial activity belongs to the 55-64 age group. The 20-34 age bracket, meanwhile, which we usually identify with swashbuckling and risk-taking youth (think Facebook and Google), has the lowest rate. Perhaps most surprising, this disparity occurred during the eleven years surrounding the dot-com boom—when the young entrepreneurial upstart became a cultural icon.” (9)

Furthermore, another Kauffman study by Robert Fairlee published in 2011 found that between1996 and 2010 the 20-34 age group’s proportion of new entrepreneurs dropped from 35% to 26%, while the 55-64 age group’s proportion rose from 14% to 23% (10)
Freelancers are self-employed, not committed long-term to a client or employer and usually not incorporated. They can be in a wide range of industries and occupations. In many of our urban creative clusters, “creative freelancing” also is a growing trend. For example:

“In a 2005 report, the Center for an Urban Future estimated that 22,000 “creative freelancers”—writers, artists, architects, producers, and interior, industrial, and graphic designers—lived in Brooklyn, an increase of more than 33 percent since 2000. The Brooklyn Economic Development Corporation has dubbed the area from Red Hook to Greenpoint the “Creative Crescent.” (11)

Many of these freelancers are Millennials, i.e., people born between 1977 and 1993. The online freelancer job mart oDesk (sic) had a survey done of “independent workers (freelancers) worldwide who had been active on odesk within 180days.” Unfortunately, no data was provided on how many respondents were from the USA, but, given that oDesk is based in CA and the website operates in English, one might reasonably presume that most respondents were American. Almost 2,000 of the freelancer respondents were Millennials and their views about entrepreneurship are revealing. They are certainly enthused by entrepreneurship though their understanding of the concept is rather untraditional: it is divorced from the notion of starting a business. As Rieva Lesonsky summarized their views:

For 90 percent of Millennials surveyed, being an entrepreneur means having a certain mindset, rather than starting a company.”
“Aspects of this mindset mentioned included being a self-starter, risk-taker, visionary and someone who ‘spots opportunity.’ ”
“Millennials see themselves as building entrepreneurial careers whether they work for someone else or freelance – they don’t necessarily have to start their own businesses.” (12)

In this respect, the Millennials’ “new entrepreneurship,” in both attitude and deed, may help channel them to corporate careers since it is exactly what corporations now are looking for in new hires. According to Eleonora Sharef of Hireart.com:

“The most successful job candidates… are ‘inventors and solution-finders,’ who are relentlessly ‘entrepreneurial’ because they understand that many employers today don’t care about your résumé, degree or how you got your knowledge, but only what you can do and what you can continuously reinvent yourself to do.” (13)

Creativeness/Inventiveness. Prima facie, it seems absurd to think that creativity and inventiveness halt completely or significantly after people reach 30 or 35. While there appears to be a lot of conventional wisdom on this subject and a number of opinion-based articles, there are surprisingly few rigorous studies. Also, the linguistic boundaries between being creative and being inventive or innovative are unclear, which makes analysis difficult. That said, if we take even a quick look at artists, be they in the visual or performing arts, they certainly appear to be creative well past their 30s, as the careers of people as diverse as da Vinci, Monet, Degas, Cezanne, Picasso, Matisse, Pollack, Grant, Olivier, Brando, Hepburn, Wilder, Lean, Ford, Allen, Kazan, Spielberg, Bach, Casals, Horowitz, Rachmaninoff and Perlman demonstrate. However, within those careers, many of the artists achieved one or more new styles or techniques that others saw as innovative and inventive. Cezanne, Matisse and Picasso, for example, were well known for their innovations, which continued on through the length of their careers. Among writers, many continued to produce works late in their lives, a small sample of whom might include Charles Dickens, Henry James, Mark Twain, Herman Wouk, Philip Roth, Agatha Christie, George Simenon and John Le Carré.

If we look at the worlds of science and technology a similar pattern emerges, with the exception of mathematics. Within academia it is commonly held that great mathematical achievements are overwhelmingly done by those under 30. Yet, Isaac Newton, who did indeed invent calculus when he was 24, then went on to invent modern physics when he was in his 40s. While Albert Einstein, Werner Heisenberg, Niels Bohr and James Watson did their best work in their 20s, Michael Faraday, Max Planck, Ernest Rutherford, Fritz Haber and Louis Pasteur did theirs in their 40s. (14)

Many of our digital wunderkinds have achieved or try to keep on making significant innovations later in their lives. Steve Jobs certainly made a splash in his 20s when he and Steve Wozniak invented the Apple computer, but he later founded Next and Pixar and many observers feel that his decades later contributions to the iPod, iTunes, iPhone and iPad were of equal or even far greater significance. Bill Gates also made major digital innovations while in his 20s and now is working on globally eradicating major diseases and improving education. Sergey Brin and Larry Page founded Google with their innovative search algorithm while in their 20s and now have their company working on such things as driverless cars and carbon free energy generation. Elon Musk helped found PayPal while in his 20s and now is involved in Tesla electric cars, SpaceX rocket launchers and SolarCity, a provider of solar energy systems. Furthermore, Silicon Valley is known for its many “serial entrepreneurs.”

One rigorous and interesting research project written in 2008 by Benjamin Jones at the Kellogg School of Management reported that the age of the innovators when they attain “great achievements in knowledge” is getting older and older: “The great achievements in knowledge of the 20th Century occurred at later and later ages. The mean age at great achievement for both Nobel Prize winners and great technological inventors rose by about 6 years over the course of the 20th Century. This aging phenomenon appears to be substantially driven by declining innovative output in the early life-cycle.” (15) Moreover, this research seems to show that “a 55-year-old and even a 65-year-old have significantly more innovation potential than a 25- year-old.” (16)

They Like Dense Urban Environments. If young creatives are not more entrepreneurial or innovative than other age cohorts, then why have they captured the attention of so many within the economic development community? It is not because they play a critical role in Florida’s defining of the creative class, in which the pivotal, all important concept is that of the work people do, whatever their age or education. As Florida has explained, he developed his theory as an alternative to human capital theories of regional development:

“Human capital theory uses educational attainment (typically the percentage of adults with a college degree), a very broad measure that excludes such successful entrepreneurs as Bill Gates and Steve Jobs, who didn’t graduate from college. My creative class measure is based on the work people actually do, as measured by detailed Bureau of Labor Statistics data. This allows researchers and economic developers to zero in on the actual occupational categories – science and engineering, arts and culture, business and management, meds and eds – that make up the creative class and other occupational classes….

The creative class is not just a proxy measure for college graduates. Roughly three?quarters of college grads in America work in creative class jobs, but four in ten members of the creative class— 16.6 million workers—do not have college degrees.” (17)

A more viable explanation of why the economic development community has focused so much of its attention on one subset of the creative class, the hip young creatives, is not the kind of work they do so much as where they like to live and their leisure time and entertainment activities. For decades, the economic development community was searching for a way to revitalize our nation’s urban areas. Numerous researchers, including Florida, Eugenie Birch and, even in some writings, Kotkin, have demonstrated that young professionals’ lifestyle preferences provide a potential solution path: they like living in dense urban environments and are flocking to them. (18)

Also interesting is that fact that this same research has shown that empty nesters, too, like dense urban living and are downsizing from their suburban single-family homes to urban apartments and townhouses. However, the economic development community has focused far less attention on the empty nesters than it has given the young hipsters.

While the hip young creatives may prefer living in dense urban areas, suburban areas can also attract large numbers of residents whose occupations fall within Florida’s definition of the Creative Class. (19) For example, in 2011, Morris County, NJ has 123,629 residents, 49% of the 269,714 in the labor force, who are in management, business, science, and arts occupations. (20) Many non-Millennial knowledge workers who have children prefer living in the suburbs. What proportion of them will move to urban core areas when their nests empty is unknown, but the odds are that significant numbers will stay in their suburban homes and/or communities, perhaps in their own downtowns in newly built or refurbished apartments. Other creatives/knowledge workers, the “lone eagles,” prefer to live and work in scenic rural “Valhallas.”(21)

Attraction for Employers. Many companies like to recruit the best and the brightest out of our nation’s top colleges and universities because they think they are accessing new ideas and techniques. Nonetheless, many firms also have a preference for hiring younger people that is based on bottom line reasoning. For example, it is not unusual to see a number of stories in the media about the age preferences in corporate hiring and the difficulties that people over 40 have in finding new jobs. Many firms prefer to hire younger people because they will work at lower salaries for longer hours, will probably be healthier and have more distant pension payouts than older and more experienced workers. One observer cited data showing that associates in one global law firm work an average of 2,462 billable and unbillable hours a year, 47 to 49 hour a week, though others in the industry claim the weekly total is probably closer to 60 hours. (22) It is not uncommon in New York City to hear claims that firms in the advertising, entertainment and legal industries “like to eat their young.”

Corporations also like to hire freelancers because of lower salary and benefit costs. As noted above, many firms may also like the millennial freelancers’ new entrepreneurial mindsets.

How this will affect corporate office locational decisions remains to be seen. Certainly there is an interest in tapping this labor market segment in regions where they are present. Often, firms may not have to locate in downtowns to tap this labor market. When making locational decisions many firms will look at labor pools defined by 30 to 45 minute travel times, which means that many urban core young knowledge workers can be tapped from many suburban locations. Some firms may decide for suburban or urban locations depending upon the situation. Google, for instance, has not moved to San Francisco though it has hundreds of white buses transporting its employees everyday from the city to and from its headquarters Mountainview complex, an hour’s drive away. Yet, it also has a very large presence in Manhattan. Also, reverse commuting has been growing in many metro areas.

Population Size. The Millennials, of which the young urban hipsters are a subset, constitute the largest generation, about 23% of the US population, but they are outnumbered by the combined populations of the older and still largely active Gen X with16%, Younger Boomers 14%, and Older Boomers 10%. (23)

Some Suggested Take Aways

There is little doubt that urban areas with a cluster of young hip creatives have a strong asset capable of driving a good part of their revitalization efforts
But, if you don’t have a heap of hip young creatives in or near your community, you may have lots of older creatives or some other assets, e.g., gas and petroleum trapped in shale rock, upon which your economic revitalization can be built
There probably are more knowledge workers and artistic people who are older than 35 years of age than younger
These “mature creatives” are more entrepreneurial and, at a minimum, just as innovative and creative as the younger group
In metro areas that are rich in knowledge workers, many of them probably live and/or work in suburban communities and these communities should have revitalization strategies that clearly recognize and leverage this asset
It should not be forgotten that many non-Millennial knowledge workers and artists also often live and/or work in dense urban areas, e.g., office workers, teachers and researchers, doctors, lawyers, nurses, architects, etc.

Disclosure

The author is not a Millennial, though he is quite fond of his friends and relatives who are.

ENDNOTES

1. See for example: Richard Florida, The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life, Basic Books, 2002, pp. 402; Joel Kotkin, The New Geography: How the Digital Revolution Is Reshaping the American Landscape, Random House.(November 2000) pp. 256. The family of terms creatives, young professionals, young urban hipsters, knowledge workers, artists are used in this article as basically referring to very similar if not entirely completely congruent groups of people, some being subsets of others.

2. Richard Florida, “Competing in the Age of Talent: Quality of Place and the New Economy,” January 2000, pp. 55

3. Personal interviews with developers from 2003 through 2007

4. John W. Martin and Jack Berry, “Winning young professionals,” Richmond Times Dispatch, May 20, 2013

5 Haya El Nasser, “Mid-sized cities get hip to attract young professionals,” Yahoo! News, October 10, 2003

6. Richard Florida, “The Fading Differentiation between City and Suburb,” Urban Land, January 31, 2013, Article

7. Tom Agan, “Why Innovators Get Better With Age,” New York Times, March 30, 2013

8. Maeve Duggan and Joanna Brenner, “The Demographics of Social Media Users — 2012,” PewResearchCenter, February 14, 2013. http://pewinternet.org/Reports/2013/Social-media-users.aspx ; Kathryn Zickuhr, Generations and their gadgets, Pew Internet, Feb 3, 2011 http://www.pewinternet.org/Reports/2011/Generations-and-gadgets/Report.aspx?view=all

9. Dane Stangler, “The Coming Entrepreneurship Boom,” Ewing Marion Kauffman Foundation, June 2009, pp. 6 p.4. Kauffman’s research looks at “all new business owners, including those who own incorporated or unincorporated businesses, and those who are employers or non-employers.”

10. Robert W. Fairlie, “Kauffman Index Of Entrepreneurial Activity 1996 – 2010,” Kauffman Foundation, March 2011, pp. 28, p.9.

11. Kay S. Hymowitz, “How Brooklyn Got Its Groove Back: New York’s biggest borough has reinvented itself as a postindustrial hot spot.” City Journal, Autumn 2011, www.city-journal.org/printable.php?id=7527

12. Rieva Lesonsky, “Millennials Are Rewriting the Rules of Work and Entrepreneurship” reports on a survey that had a full sample of 3,193, of which 1,958 were Millennials and was done by Millennial Branding for oDesk. For the oDesk slideshow on the report see: http://www.slideshare.net/oDesk/millennials-and-the-future-of-work-survey-results

13. As described in Thomas L. Friedman, “How to Get a Job,” New York Times, May 28, 2013, NYT Article here

14. See: http://www.scieditco.com/images/agescientists.html

15. Benjamin F. Jones , “Age and Great Invention,” Kellogg School of Management, April 2008

16. See Tom Egan above

17. Richard Florida, theatlanticcities.com/jobs?and?economy/2012/07/what?critics?get?wrong?about?creative?class/2430/

18. Eugenie L. Birch, “Who Lives Downtown,” November 2005 • The Brookings Institution • Living Cities Census Series, pp. 20

19. Kris Hudson, Wall Street Journal, May 15, 2013,”Is Generation Y a ‘Game Changer’ for Housing?”

20. Source: U.S. Census Bureau, 2007-2011 American Community Survey

21. See: Philip M. Burgess, “Lone Eagles Are a Varied Species,” The Rocky Mountain News, April 12, 1994 and Joel Kotkin, The New Geography cited above

22. Steven J. Harper, “The Tyranny of the Billable Hour,” New York Times , March 28, 2013, http://www.nytimes.com/2013/03/29/opinion/the-case-against-the-law-firm-billable-hour.html

23. Pew Research Center’s typology of generations was used with national census data for 2011 to compute these population estimates.

N. David Milder at DANTH, Inc.

Downtown Revitalization Specialist

Category Archives: Small Towns

The New Normal’s Challenges to Developing a Downtown Entertainment Niche Based on Formal Entertainments: Part 1

Introduction

Consumer Expenditures for Entertainment Admissions and Fees.

Grants for Arts Nonprofits

Small Downtowns Succeed Not By Growing A Lot Bigger, But By Becoming A Lot Better

I do not think I have provided here the full answer to the question of how, besides the dimensions associated with size, successful small downtowns differ from successful large downtowns, but I feel confident that I am on the right road.

Acknowledgements: I would like to thank Mark Waterhouse, Bill Ryan, Andrew Dane and Laura Krakoff for their helpful comments and edits on an earlier draft of this article.

So…Surprise! You have a lot of suburban creatives…

So You Don’t Have a Lot of Hip Young Professionals…