—————————————————————————————————-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’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?
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.
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.
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”.
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…
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….