According to Wharton professor, Peter Linneman, the European Union is doomed to fail because it lacks the critical features necessary to fix itself. Essentially, it is not a free market within itself, which would enable self correcting measures to cure what ails it. Greece has more people than its economy can support. Unfortunately, a young Greek college grad can’t just pick up and move to Germany, which happens to have more skilled job openings than its population can fill. A Greek person typically doesn’t speak German, and the Germans aren’t always receptive to outsiders.
In the U.S., we can fix these market inefficiencies of supply and demand more easily because we also have mobility. When the United States automobile industry fell on hard times, young people in Southern Michigan and Ohio picked up and moved to Houston, Dallas and NY to find work. While cities like Las Vegas, Los Angeles and Philly have not recovered the job losses from the ’09 recession, other cities like NYC, Dallas, and San Antonio have more than bounced back. In effect, our free market system in the U.S. is efficient and mobile allowing self correcting actions to occur when parts of the labor market become relatively weak or strong. The EU doesn’t have the same characteristics.
What does all of this have to do with Center City? Good question. I think jobs are coming to Center City and here’s why:
1. Our local economy is driven by “Eds and Meds”. Look around downtown; where are the construction cranes? The universities and hospitals are expanding which means more jobs. The revival of the Boston and Northern California economies post 1990 were largely driven by technology companies drawn to Harvard/MIT and Stanford/Cal Tech. As Penn, Drexel, Temple and other Philadelphia universities continue to grow and build their reputations, more quality students will come. Companies want to be where the talent is. Especially if it’s cheaper than elsewhere. We are a relatively cheap city with great access along the Mid-Atlantic Corridor.
2. As corporations drive to denser and denser space programs (some users are now programmed to about 7 or 8 workers per 1,000 sf of space), suburban office parks will not be able to handle the increasing parking requirements. The most modern suburban office parks can accommodate only 4 or maybe 5 cars per 1,000 sf of office space, not the 7 or 8 required for today’s aggressive space consumers. Perhaps that’s why many REITS are selling their suburban office products and de-emphasizing that asset class, especially in tertiary markets.
3. World demand for energy will continue to grow driving gas prices to levels which will make commuting by car prohibitive for many. People are more energy and cost conscious. McMansions are languishing on the market because their carbon footprint is too big. I’m told even tycoons now think twice before taking their yacht out for a two hour joy ride. The City will be a cheaper place to live and it will be easier and more energy efficient to get to work.
4. Good housing is coming to Philly and that is bringing people. 4,000 rental units will hit the market in Center City in the next 12-18 months. While its mostly empty nesters and young couples flooding into the City right now, retailing and amenities are popping up to support the new population which will eventually make the City more attractive to families. That means schools (even if only the private ones initially) will start to prosper and perhaps even become a draw.
Sure it would help if the City of Philadelphia would fix its tax problem, but I think that’s in the works. They’ll figure out a way to tax things that can’t move (i.e. real estate) and ease the burden on those that can (like businesses). When that happens, “they will come” like the mysterious voice promised Kevin Costner in Field of Dreams.
We’re mobile in the U.S. and people, ultimately, go where the opportunities are. I think the opportunities will be in Center City. And if I’m wrong? Well in that case, Center City office tenants will just continue to benefit from very cheap rents!
For more information contact Glenn Blumenfeld