Tag Archives: New York City

NYC Urbanomics Part 2: The New York City Food Sector – Market Overview and Investment Parameters

This post is part of a series of posts about the Economics of Urban Centers as illustrated within the context of global metrolpolis New York City.  In this we will cover premium food, and how NYers choose it.

A. MARKET OVERVIEW

Dining is considered an essential fabric of urban centers. Food in the 21st century is part of lifestyle, an experience, a city attraction and eventually big business. These dayts urban planners have to create a variety of dining options to attract professionals and commercial activity in a city.  Food operators have to go the extra mile and offer uniqueness celebrated in the likes of art, to the high end consumer.  And the consumer has to eventually shell out more for all of this.

Food has become part of the individual’s identity a statement same as clothing, housing, cars (just to remember French philosopher and sociologist Bourdieu). For example there’s green, biological, vegan, vegetarian, ethnic cuisine. Food producers provide information on whether protected origin, photos of people producing the food, whether renewable energy used in production or other environmentally friendly process, whether handpicked or other.  They stay in touch and interact with consumers online.

NYers take pride in having one of the best dining options around the world in terms of variety and quality. The total value of the New York food industry is around $ 19 billion (US Census) and covers a large number of companies and flavors. It is also one of the big income earners for municipal and state coffers and a big employer that caters for the millions of residents and tourists.

On the other hand, considering the cosmopolitan character the population increase, high incomes and many tourists it’s not strange that there’s so much interest in investing both from domestic and international investors and businesses.  Operating here can offer apart from significant return in its own right, visibility across the US and world and hence brand projection and as springboard for expansion.

Below we provide some basic information for aspiring market participants, this is not a complete market study, while we are open to discuss further.

  • Large size: total population of the extended NYC metro area is estimated at 20 million. New York has the highest population density in the US.  Manhattan’s population at around 2 million more than doubles during the day with the influx of work commuters, visitors and tourists.  NYC boasts some of the highest family incomes.  Outside locals tourists are estimated at 52 million with an average spending of $ 700 ($37bn total influx).
  • The bigger picture: The American food industry in total is a $1.1 trn market of which retail food (at home) accounts for $650 bn and foodservice (away from home food) for $ 450 billion of which fast food is $ 184 bn. Sales of specialty food is estimated at $70 nm and or organic food at $30 bn growing at high rates. New York City because of its position as probably the largest business center in the world is the necessary point of presence for global brands. Often NYC, with its international population and tourism serves as testing ground for many ideas and creates trends. Although the overall food market is mature, there is potential for explosive growth in sub-sectors as evidenced by the meteoric rise of Greek yogurt much of which started in NYC. It’s not uncommon for tourist to visit certain stores they’ve seen in movies, (for example the Boathouse or the Serendipity or to try products made famous here like the cronut or the cupcake). You may refer to our earlier post in this series regarding NYC’s redevelopment into an attractive investment destination and a consumer mega-center here: NYC Urbanomics Part 1: NYC Redevelopment, a template for urban renaissance and commercial boom.
  • Demographics: New York City has a strong international/cosmopolitan character. One in three New Yorkers are foreign-born.  Nearly 400,000 millionaires live in New York, mostly Manhattan.  Each borough has a different character with Manhattan being the more affluent and the big corporate, retail and tourist center.  There’s a higher percentage of prime age professionals (20-50) in Manhattan compared to the boroughs and lower percentage of children.  Families and small businesses are more common in the outer boroughs and incomes are generally lower there. However real estate prices have recently been increasing in Brooklyn and Queens even there (Long Island City).  Much of these increases have been due to gentrification and population inflow mainly from foreigners but as well Americans especially the young that have stormed the Brooklyn  All that is important in selecting the locations that are a good fit for a particular concept and then estimate traffic and consumption.

NYC Age Breakdown by Borough and Income Map

  • Spending Patterns: The average household income in most of Manhattan exceeds $100,000 (some of the richest areas in all America) with 12.4 % of that spent on food. In the other boroughs average family income is much lower (the poorest receive food aid). Manhattan residents, where the center of the dining industry, have high educational level and are very sensitive to service quality and healthy, biological and gourmet aspects of food. New Yorkers are characterized by lack of time and small household size factors that favor fast food consumption (40 % of Americans eat 4 times a day) with snacking being more common among the younger. The majority of Manhattan residents are actually single.  On top of that one has to appreciate the huge spending by the more than $50 million tourists, much of which goes to food. With so many commuters and tourists flocking the streets what’s more natural than a quick snack, especially with all the so many intriguing options?  Manhattan is becoming a sort of an urban theme park, a Disneyland for the well off and the many tourists. All these factors create an ideal environment for food away from home.
  • Food retail – Competition: NY is characterized by the absence of large national grocery chains (ie WalMart). The market is fragmented, there’s a large number of establishments divided between supermarket chains, convenience store, discount stores and specialty store. Supermarket chains are upscale, mainly in Manhattan such as Whole Foods, Food Emporium, D’Agostino or more affordable/middle class in the suburbs.  Real estate in NYC is expensive. That means that supermarkets are smaller and more cramped compared to those in the suburbs.  It also means that shelf space is costly which sets the bar high for product sales.  Trader Joe’s, the fast moving product chain, that is also present in Manhattan, has nationwide an average estimated revenue per square foot of $1,750 in 2010, more than double that for Whole Foods (Inside the secret world of Trader Joe’s).  Prices can be high but upscale consumers have as well high expectations from product quality and branding.  There are also many specialty stores (ethnic, deli, organic etc) where prices and margins are higher but they have to make up for lower volumes too.  Outside that, for many busy NYers small specialty and convenience stores are the grocery stores of choice.  Many ethnic stores in the boroughs cater to immigrants communities within which they are located and to their spending power.  Discount stores (like family dollar) serve lower income consumers; although prices there are low, profit margins are significant.

NYC Grocery Store Photos

  • Foodservice — Competition: establishments are divided into fast food, fast casual, casual dining and fine dining. The market is fragmented as well. There is a large number of establishments with most of restaurants being independent and to a much lesser extent franchised/multi establishment.  Apart from the large number of fine restaurants and celebrity chefs, mainly in Manhattan, NYC also offers all other options, from international cuisine, diners, ethnic food and very common street food (food trucks).

NYC Fast Food Store Photos

  • Foodservice segmentation: There’s everything in NYC, something for everybody. If NYC doesn’t have it, then probably you don’t want it, or maybe it’ll not going to be long until it has it…! Here are the main dining categories:
  • Casual and fine dining: Virtually all types of cuisine are available in good supply. Outside typical cuisines and styles (French, Chinese, Italian, American etc) variety extends to hybrids, for example vegan sushi and other; it’s up to innovation. Apart from being distinguished based on type of cuisine, establishment are also classified according to character/setup such as lounges, bistros, brasseries, gastropubs, etc A foodie paradise!
  • Fast food and Fast casual (both not offering full table service but the second being more expensive with upscale/unique design and most of food prepared in the store): The New York City fast food sector includes chains selling the traditional burgers (along traditional ones new specialty are gaining popularity: Bareburger, Five Guys), chicken (KFC), sandwich (Subway), international such as Mexican (Chipotle, Taco Bell), Asian(noodle) and other ethnic options, Bakery/Coffee (ie Panera, Starbucks), Pizza (Papa John’s, Domino’s) and other specialty stores (for example salad (Chop’t), seafood (Red Lobster) etc). The most popular type of fast food is the burger, followed by sandwiches and chicken. The fast casual niche is very promising especially in NYC.  It generates $21−22 bn nationally and is not only growing fast but also setting trends.  It’s more suitable for today’s consumer character same as original fast food chains revolutionized the industry in the 20th  Lately even McDonald’s said it will allow customization.

US Fast Food Store Breakdown

  • Foodmarkets: These are new arrivals to the NYC scene. They are very large stores that combine multiple restaurants and groceries usually centered around a theme. Eataly was the first one, offering all sorts of Italian products and cuisines, capitalizing on famous chef’s Mario Batali reputation and TV persona. It is very successful although the high investment. It has since expanded in other cities and locations. What’s interesting for Eataly is that it promoted the Italian culture through its store and eventually Italy as a destination. It is to be followed by a French themed foodmarket called Le District of the Poulakakos group, in the lower tip of Manhattan.  There are other such projects discussed or coming such as European themed Hudson Market and a global themed one discussed by famous chef and TV persona Bourdain.
  • Consumer profile: High end consumers in NYC are more interested in service, décor and experience; in fact maybe more than food. According to certain surveys this is a general trend.  As René Redzepi, the much celebrated Danish Michelin awarded chef puts it: “Our main mission at the restaurant and what I tell the staff when they leave here is, give your guests a sense of time and place. Whether it’s the product range, which is a big part of us, but also the whole atmosphere, the way that the restaurant is set. That’s how we give our guests a sense of time and place”. A Nielsen survey regarding wine consumer profiles’ is very revealing in this respect: almost half of wine sales are performed by wine enthusiast and image seekers that perceive the product as sort of a hobby or projection of them selves.  They spend a lot of time on research and to get educated on the product so the retailers have to cater by providing variety, good service and information.  Off course price is not their main concern.  Uniqueness, customization is key.

 

B. INVESTMENT PARAMETERS

Given that there’s significant interest for investment in the NYC food sector lately we present below some basic information useful in evaluating the feasibility of such an endeavor.  There’s no doubt that operating in New York City offers many benefits in terms of return and visibility but at the same time the capital required is significant and so are the risks. Hence a very careful evaluation is necessary.   You may also refer to our earlier post in this series regarding NYC’s redevelopment into an attractive investment destination and a consumer mega-center here: NYC Urbanomics Part 1: NYC Redevelopment, a template for urban renaissance and commercial boom.

The information below is only indicative based research we have carried out for international chains and importers of upscale foods and opportunity evaluation regarding expansion in the NYC area.  We are able to discuss in more detail with investors and operators the feasibility of their ideas, entry barriers, get-to-market approach, business plan, operating, labor and tax issues, marketing plan and provide consulting services in this respect. We also have successful operating concepts to present to investors as well as proposals for greenfield developments.

  • Concept: As mentioned before upscale consumers are all about character and information, so customization is the name of the game. Fast casual chains offer this possibility (Bareburger, Chipotle etc) as well as premium service. It doesn’t hurt as well to center everything around an environmental/socially sensitive aspect something quite important for the millenials. There are various ways to create product differentiation for upscale pricing but let us keep this for our clients. On the other hand there are opportunities in the lower end of the market just as long keeps limitations into perspective.
  • Location: Manhattan or certain areas in Brooklyn and maybe Queens offer the highest incomes and favorable traffic and consumption patters. The location depends on the type of concept vs the area’s demographics, ie whether it’s more appealing to young or professionals or families.  Traffic also depends on location and whether this is a location with 24 hour traffic, business center with lunch snacking or nightlife spot.  Rents will also be higher for busy areas except if somebody is able to be ahead of the curve although the market has pretty much priced in these days future gentrification, subway expansion, new office and commercial development etc.  Although vacancy rates are low there is new store development as well. Furthermore supply can be crated from a large number of expiration of old leases or stores closing to make way to new concepts. A good real estate agent and lawyer can help a lot in this respect.

Financial Parameters:

  • Sales targets: McDonald’s still sets the standard in fast food. It has one of the highest sales per store at $2.6 million and successful fast casual chains are not far from that (Panera, $2,3m, Chipotle at $2,1m at 2012). Sandwich, coffee and pizza stores are lower than that.  Fine dining/small restaurants will have to aim for as high as $100 per person or higher while lower margin establishments survive on the high traffic/low price concept.  Regarding food import/wholesale we have already noted high shelf cost for retailers something that calls for low risk products ie products with brand awareness (ie marketing support), sales rep expenses and off course administrative and distribution.
  • The rent can be as high as over $100-150/ft per year in Manhattan and moving towards these directions in popular, up and coming locations in the boroughs, although generally lower there. By comparison average retail rent sought in Manhattan in spring 2013 was $116/sq.ft but in prime locations can go well into four digits (Street’s Sunny Side Costs Retailers More in Rent)
  • Wages: The minimum NYC wage is $8.75 per hour (end of 2014) and to be raised to $9 but wages can be higher depending on experience. National accommodation and food industry wages are about $13 an hour on average for all employees and $11.50 for nonsupervisory employees (Six industries that can’t find workers fast enough)  There’s ample labor supply in NYC although unemployment is getting low so good workers have options. There’s also a large number of undocumented immigrants working in the food sector in NYC; that’s a common secret. Healthcare insurance may be avoided if small business, but other business insurance is advised in a very litigious environment.
  • People: Taking into consideration the level of sophistication and competition as well as the lofty economic parameters it’s not strange that stakes are high in the NYC food sector. NYC retailers and restaurateurs have to invent ways to persuade their customer about their distinctive experience something that will justify higher prices. Yes there are new trends, new diets, molecular gastronomy, and other tantalizing tastes but in the end who cares about food? Who wants to eat after all? Actually people are trying hard not to eat and limit calorie intake. But they care about other issues such as the atmosphere, the concept.  There’s a large number of professional going into the product that may have nothing with food, for example architects, designers, concept consultants, marketers, digital/social media professionals not to mention dieticians, food safety and productions experts and other. Customer analytics and other marketing tools are important in analyzing client profiles.  As a result more money goes on sales & general expenses, what’s called customer acquisition, rather than product cost.  No misunderstanding, quality has to be there, this is a common denominator, a prerequisite.  But it’s the branding that feeds into the mind of the self-actualized consumer.  So the money to buy so many brains is important.  See for example the level of expenses going into design vs production for luxury products. This level of professionalism and investment is often mind-blowing for traditional operators.  In some occasions however some of the operators are able to realize trends and come up with fresh concepts on their own (for example Bareburger).
  • Regulations: Establishments have to comply with local food safety regulations and the NYC environment can be unforgiving due to humidity and large number of rodents. Food importers have to check for import quotas and other limitations.  Trading and selling alcoholic drinks require special licensing.  There are also zoning regulations regarding permitted commercial activities in a specific area as well as construction costs and procedures that have to be taken into consideration in the case of new endeavors, which can be lengthy. Setting up a legal entity is quite straightforward though.

Let us know about questions. We are happy to discuss your project or to present proven business concepts to invest (as franchisee or shareholders) or proposals for new projects.

——————————-

This post is part of a series of posts about the Economics of Urban Centers as illustrated within the context of global metrolpolis New York City.  In this we cover premium food, and how NYers choose it.  You may refer to our earlier post in this series regarding NYC’s redevelopment and how it manage to take distance from a past of urban decline and turn into a consumer mega-center here: NYC Urbanomics Part 1: NYC Redevelopment, a template for urban renaissance and commercial boom.  In this post we also present some of the reasons NYC is an attractive investment destination as well as of the consumer profile there.

——————————-

By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum. For more information on our consulting services please refer to our website at Transatlantic Business Forum..

—————–

NYC Urbanomics Part 1: New York City Redevelopment, a template for urban renaissance and commercial boom

—————————————————————————————————-This is the first of a series of posts about the Economics of Urban Centers as depicted by trends in economy and society in one of the most important globally: New York City. In this first post we’ll cover how NYC has emerged over the last decades into a thriving commercial and real estate center, taking distance from a depressed past. We’ll present facts and thoughts on how this transformation was brought about in what may serve as inspiration for others. The analysis will also highlight some of the reasons for which NYC is a prime consumer market for existing and new businesses and products.

—————————————————————————————————-

According to the 2012 Economist Intelligence Unit, New York City is ranked on top of the competitiveness list of all cities globally.  New York is characterized as an Alpha ++ world center, sharing this highest title only with London. Although not the most populous globally, NYC is considered of immense importance as developments there can have an effect around the world.  Its importance is also demonstrated by ability to attract capital, businesses, talent and visitors. For these reason NYC, is the necessary point of presence for global businesses and brands but can also serve as launching pad for new products and concepts.

Some interesting NYC highlights:

  • NYC’s population is estimated at 8.3 million, spread over its five boroughs (Manhattan, Queens, Brooklyn, Bronx and State Island). It is growing and expected to surpass 9 million by 2020.  The broader NYC metropolitan area, includes parts of Long Island, Connecticut, New Jersey, even Pennsylvania. This area has a total population of 20 million.  Many of them commute to NYC’s center daily where population almost doubles during the workday.  Manhattan is the most densely populated in the US; as illustrated by the many high-rises that keep on spreading there as in the surrounding boroughs.
  • NYC’s GDP stands at $1.4 trn or 11% of the whole US. If taken separately, this could place it in the top 20 countries worldwide, close to Australia.  In the same way NYC’s theoretical GDP per capita is estimated at $57,000 by the Brookings Institute which could place it higher than countries such as Japan, France or Germany.  NYC differs from the rest of the US in terms of demographics, character and economy. For all these factors NYC can be approached as a separate market on its own comparable to those of Belgium or Switzerland.
  • New York boasts some of the most expensive neighborhoods in all America with family incomes exceeding $100,000 for a large part of Manhattan. Other high income areas are located in New Jersey, Long Island and Connecticut Nearly 400,000 millionaires live in New York. Retail space is one of the most expensive in the world. Multimillion apartments are sold to international investors and new residential skyscrapers go up as fast as ever to cater for this demand.

NYC Population and Tourism 1900-2010

  • NYC’s economy has recovered well after the 2007-2008 financial crisis and is being diversified away from overreliance to the financial sector, assisted by tourism as well as investment in real estate, education, new media and technology. Population is increasing driven by internal and international immigration. New York City has evolved from the tumultuous ‘70s of urban decay and population decline to a magnet for tourism and expensive real estate investment.  There are currently 52 million tourists each year steadily growing, contribution $37bn to the economy. Who would imagine that as recent as in the 90’s?

So how did this happen?

Safety

Much has been attributed, sort of a cornerstone, to the increase in safety and gentrification. Back in the ’70s-‘80s, NYC was a dangerous place, even in its iconic Times Square, as depicted in this era’s movies.  It’s almost hard to imagine that today, same as it’s hard to envision the tenement era misery.  Much of the crime reduction has been attributed to Mayor Giuliani and his heritage of tough handed policing such as the ambiguous “broken windows” concept.  There were 2,245 murders in 1990 but have fallen by 90% to 240 in 2013.  Other crime statistics have also been in decline. That off course it’s making it safe for people to live there or visit and spend on retail and entertainment. And that in turn is building confidence for real estate and other business investment.

42nd street in 70s and 2010

Urban landscaping

This has to do with architecture and creating communities that promote certain consumer, leisure or business activities. For example, much of the Times Square turnaround has been attributed to the arrival of high profile business offices, starting with advertising firm Conde Nast a move considered odd at that time.  In this context whole neighborhoods have been redeveloped, often changing names to take distance from their past. The process is well documented: first avant-garde artists and youth move in driven by low prices and inspiration from disenchanted surroundings.  NYC being liberal and welcoming assists to that. Soon others flock in for this unique character and to rub shoulders with the famous. Prices start to go up with preexisting residents moving out and eventually the artists themselves.  That’s what happened, with some variations, to SoHo, Village, Tribeca, DUMBO, Lower East Side, Meatpacking.  The trend has been assisted by rezoning policies. During Bloomberg’s administration almost 40% of New York has been rezoned, changing use for large blocks and transforming once industrials sites. Meatpacking or the Brooklyn river side parks are such examples.  Once industrial uses are phased out, new businesses step in to support residential development.

City branding

This we would say involves the development of a city image that promotes a place as a destination. A tool for enhancing NYC’s image and establishing it as a magnet internationally is through arts such as movies, music and fiction. “If you can make it there, you can make it anywhere” the saying goes that has stuck with many, even probably if it’s probably harder to make it in other places.  On the local radio and TV, New York is called “the greatest city in the world”. This might be true under some metrics but it’s quite subjective isn’t it? In any case saying it, is believing it; it sticks.  This image development didn’t happen accidentally either. Filming in NYC has been benefited from a municipal program instigated some 40 years ago (see NYC’s Mayor’s Office of Film, Theatre & Broadcasting (MOFTB)). This has also created many jobs such as film crews, catering and other support not to mention celebrity coverage.

Population increase and Urbanization

As traditional economic thought has it, an economy is growing where population is growing and vice versa. NYC’s population has considerably increased during the last 30 years both from domestic and international immigration.  Apart from the quest for opportunities this is also attributed to an attitude shift among younger generations that now favor urbanization and city centers over suburbs. According to the 2013 Urban Land Institute Survey, 62% of Americans planning to move in the next five years, would prefer to settle in mix-use communities (they offer entertainment, shops, offices).  Indeed in 2011, for the first time, population growth outpaced suburban growth.  As Michael Bloomberg put it in his last speech as Mayor: “It’s clear that the golden age of the suburb is over, and it’s being replaced by a new urban renaissance”.  

Urban trends by generation

The younger generation in particular, called the Millenials (or Generation Y) are the ones favoring urban centers. The Millenials (estimated at 80 million in the US) are more individualistic, challenge status quo, drive less, are more sensitive to civic issues and activism such as ecology. They are more attached to technology and online communities, less committed to employers than previous generations and more interested in work-life balance that allows for free-time.  They not only change city planning but marketing as well.

Technology and startups

Among the most critical parts of NYC’s population increase have been the influx of the young and the brightest.  This has been assisted by high paid jobs in finance and law but more recently from a lively startup scene that is now compared to that of the West Coast.  Silicon Alley in Manhattan or the Brooklyn Navy Yard are such startup and tech hubs. Business sectors are been reinvented. The loss of print media is counterbalanced by the rise in online and social media.  Technology growth is supported by conscious political decisions such as expansion of Columbia’s Engineering School and the development of the Cornell-Technion Graduate School at Roosevelt Island.  Another critical component is availability of financing.  Venture Capital funds invested in the New York City area were valued at $1.2 billion, in the fourth quarter of 2013 according to PWC research. This marked a 49% increase over the same period the year before, surpassing Boston for the first time since 2001. NYC is now only trailing Silicon Valley in this area, the undisputed leaders, that raised $3.2 billion during the same period.

The special character

The saying goes that NYers are a special breed.  May be this is a myth may be not. It’s still an intriguing thought. But who are the NYers? Those born there or the ones that immigrated? The NYers of the tough past? The high net worth investors? The aspiring artists? The young transplants searching for urban thrills? Those searching a break? The yuppies? The old school? Probably all of them.  So it’s probably difficult to pinpoint to a common denominator. NYers seem rude by American standards but then again coexist in a multiethnic, multiracial, multidenominational environment, they are self-consumed but civic, and although liberal they coexist with the highest income inequalities. Manhattan is one of the most densely populated American cities yet over 50% of its residents live alone. (Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone, 2013, Eric Klinberg). In a way living together in isolation This is not typical for the US and may illustrate differences in character. Back in 1957, a University of Michigan survey showed that 80% of respondents believed that people who preferred being unmarried were “sick,” “immoral,” or “neurotic.”  Something like a Scorcese or Woody Allen movie character or if you subscribe to the notion that media create stereotypes or reflect them popular series like Seinfeld, Girls, Sex and the City, Friends etc.  Back in the 50’s more than 70% of US adults were married something that although changing now still from the norm in NYC.  So what are the implications? No matter what the NY character is allowing for so much variety, freedom of expression but also privacy probably fuelled population growth mainly by singles. It would have been more difficult for families to move in Manhattan let alone afford it.  Living alone doesn’t come cheap even when sharing apartments.  This in turn supports or justifies high real estate prices.

Real Estate boom

NYC real estate prices have soared over time. Median sales price in Manhattan has reached $1,050,000 ($3,500,000 for townhouses) in 2013 according to Trulia and Douglas Elliman more than doubling over the last decade with average price per sq. ft at $1,260. Median rental price reached $3,100 with a vacancy rate of just 2.8%.  Brooklyn has also developed rapidly with prices reaching those of Manhattan especially at the neighborhoods close to it such as Williamsburg and more lately downtown Brooklyn that have attracted a crowd of young professionals, startups and hipsters, a self-contained community. Although the other boroughs have not followed at the same pace there are pockets of interest developing in Long Island City in Queens that has seen spectacular development with high-rises lately.  Proximity to Manhattan also counts in this migration as higher prices there are pushing people further and further. There’s even talk about South Bronx. It’s now called SoBro…

NYC avg price per sq feet 2000-2013

And if you’d think that was it, then wait to see the new wave of megastructures currently under development such as Hudson Yards, 432 Park (89floors, the tallest residential at least building in NYC, penthouse sold for $95m), One57, 30 Park Place (68 floors), 225 West 57th Street (88 floors), 220 Central Park South (41 floors).

Chinese buyers invested $22 bn on real estate between March 2013-2014 up from $12.8 billion the year before according to the National Association of Realtors. It’s something more than simple pied-à-terre; it’s trophy investment. New expensive buildings on 57th with views on Central Park have earned it the name Billionaire’s Belt. The retail sector is booming.  Seventyone fashion stores opened in 2012, one every 5 days and even this metric can hardly illustrate the level of activity. Prime retail rents go for as high as $3,500 per square foot.

We shouldn’t forget mentioning the office space coming in the market with the World Trade Center development. Conde Nast has left Times Square to occupy One World Trade Center and the nearby former World Financial Center is turning into a dining wonder. Development in Hudson Yards and subway expansion coming in line for first time after many years, accommodate coverage over wider areas.

Eventually NYC real estate has developed into a coveted, safe investment. An interesting aspect is that with so much foreign investment a risk of recession for the city is not purely dependent on the US economy. On the other hand a crisis could be just as easily triggered by overseas economic instability. And at the same time problems here will be felt far away.

There’s the other side too

Closing we wouldn’t like to ignore some negative effects from development. Gentrification and tough police practices don’t come without complaints. The financially weaker suffer from housing prices. They have to leave their neighborhoods or pay a higher percentage of salary to rent than in other US cities, pretty much living month to month.  Until the ‘70s in most US metro areas average median homes worth roughly three times median income; in New York now the ratio reaches 6 or 7 and during the housing boom at 10 (How Can We Be So Dense?, Forbes). In NYC the average rent to income ratio is 50% in 2012 while in Miami at 29% (Priciest Cities to Rent, CNBC). Many have to move out, whole communities and lives change. But the social effects are a discussion we won’t cover in this post; we only focused on the business/commercial aspect of the development.

The NYC self-actualized consumer profile

NYC, or at least Manhattan, is pretty much run as a business; companies go there to hire the best, access high returns and promote their global image. Through that they provide income for the city directly as well as through their employees that bear a high living cost for all the amenities offered. Tourists flock in to see the numerous NYC attractions promoted by media while new ones are continuously created (such as the High Line and other parks, new museums etc). Capital flows into high-end real estate, clothing, luxury goods and gourmet food creating many jobs.  But earning these consumer dollars is not straightforward.  Consumer preferences in such upscale markets tend to satisfy not some basic needs but self-actualization or projection of status, , it’s maybe what Veblen called “conspicuous consumption” and Bourdieu “identity statement”.

Marketers have to adopt new techniques to cater for the self-actualized consumer psyche. We will cover the economics and characterizes of the self-actualized consumer in other posts as it applies in doing business in retail, food or other.

Closing: NYC a template for urban redevelopment and economic growth but at what cost?

New York always was a great business center. But during the last couple decades NYC has gone a long distance from the rough ‘70s and ‘80s to evolve into a coveted real estate investment destination and a consumer Mecca. Global brands can’t afford not to be present there and new concepts are tested and spread out globally. This transformation couldn’t have happened accidentally.  Certain policy decisions as well as intelligent urban planning have been critical in promoting the city’s image and in attracting immigration and the type of business activity that can favor growth.  We tried to identify some of these policies in order to provide food for thought for other urban development attempts elsewhere.  Off course there are always positive and negative effects in such situations.  There are complaints for NYC’s loss of character and high cost of living especially for the weakest.

Some may call it a global center, some a business, some playground of the rich or Theme Park for grown ups. A type of Disneyland, a Manhattan-land if one could coin this term, for urban consumers and tourists.  Probably Travis Bickle (the Taxi Driver protagonist) wouldn’t recognize NYC any more; he would have found it very hard to fit in anyway….

——————————-

By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.