Untapped Potential — Cities

At a macro lev­el, the US econ­o­my is still grow­ing slow­ly. There are a few good signs of improve­ment, as we’re into the ninth year from 2008’s reces­sion. But one bright spot are cities – and inter­est­ing­ly, not all large ones. And, if it’s a “smart” city plan­ning well, it will like­ly cre­ate even more advan­tages – and oppor­tu­ni­ties for com­pa­nies — in com­ing years.

Some pos­i­tive macro points to track as we’re into the autumn and last quar­ter of 2017:

• U.S. house­hold debt has con­tin­ued to shrink – since 2008, many Amer­i­cans reduced their bor­row­ing, which is now show­ing up as more dis­pos­able income and recov­er­ing con­sumer spend­ing,
• Ris­ing home and stock prices are also a plus, which is mak­ing the ratio of con­sumers’ debt pay­ments to their dis­pos­able income much low­er than before 2008,
• Man­u­fac­tur­ing employ­ment is up, and
• New job growth remains steady, if some­what tepid — along with stag­nant wage growth – but still at a con­tin­u­ing pos­i­tive trend and slow­ly mak­ing a tighter labor mar­ket, which will hope­ful­ly be good for wage growth.

But where oh where is real growth hap­pen­ing? Cities. Austin, Char­lotte and Den­ver are three good exam­ples of mid-sized cities grow­ing rapid­ly.

Austin TX’s econ­o­my grew at a 5% clip last year – more than twice of the nation­al aver­age. Pop­u­la­tion growth too was sig­nif­i­cant: a 16% boost in pop­u­la­tion between 2010–2015, with the high­est growth in the sub­urbs. What’s dri­ving the surge? Pro­fes­sion­al and busi­ness ser­vices – not oil and gas as in many places in Texas. A large part of the growth is tied to employ­ment in big­ger com­pa­nies mov­ing in, includ­ing Apple, Face­book, Google and Ama­zon. A hid­den ben­e­fit: young peo­ple. In the Cen­tral Texas region, there are over 400,000 col­lege and uni­ver­si­ty stu­dents, which is a rar­i­ty in the U.S. Plus, as one observ­er put it: “beer is cold, music is good, and the enchi­ladas are tasty” – a great com­bi­na­tion!

Char­lotte NC is anoth­er exam­ple of a boom­ing city, with pop­u­la­tion growth of 15.1% between 2010–2015. Its econ­o­my is also grow­ing faster than the rest of the state, grow­ing between 3–4% per year for the same peri­od. Again, what’s behind this growth? His­tor­i­cal­ly, Char­lotte has been a finan­cial ser­vices cen­ter, with Bank of America’s and Wachovia’s head­quar­ters. But since 2008, more com­pa­nies have been mov­ing their head­quar­ters there, includ­ing Sealed Air and MetLife (in part due to low­er cor­po­rate tax­es). What sur­veys sug­gest for Char­lotte is a rea­son­able cost of liv­ing, strong job growth, and a high qual­i­ty of life, includ­ing weath­er.

Den­ver CO (and most of the front range area, from Col­orado Springs to Boul­der) is com­ing out of 3+% growth rates since 2008, with a 2017 fore­cast to be in the 2.4% range. Imag­ine liv­ing some­where where it is esti­mat­ed that up to 8,000 new peo­ple arrive every day? Con­struc­tion, tourism and health care are the lead­ing sec­tors. Ris­ing home prices, such as in Boul­der CO, are wor­ry­ing some, but new tech start-ups through­out the Den­ver area are excit­ing to many mil­len­ni­als. Again, a high qual­i­ty of life is cit­ed by most Den­ver sur­veys.

What are some com­mon themes? Dis­per­sion and con­cen­tra­tion are two key char­ac­ter­is­tics for all three of these grow­ing cities. In today’s world of inter­con­nec­tiv­i­ty, from air­planes to the inter­net, more com­pa­nies and jobs are allow­ing more flex­i­bil­i­ty — and dis­persed — work forces. Goods and ser­vices are now avail­able almost any­where (e.g. Ama­zon effect), which again, are allow­ing more liv­ing loca­tion options. And, with an exist­ing core or grow­ing set of attrac­tive ameni­ties, from the out­doors (Den­ver), good music (Austin) and more urbane liv­ing and options (like Char­lotte), small­er to mid-sized cities and “edge cities,” as the author and demog­ra­ph­er Joel Gar­reau coined, will only con­tin­ue to out-pace oth­er U.S. cities in the future.

Where do “smart” cities fit in? The growth of smart city ini­tia­tives, at a basic lev­el, is all about invest­ments in infra­struc­ture, tech­nol­o­gy and social cap­i­tal to make more sus­tain­able eco­nom­ic devel­op­ment and a high­er qual­i­ty of life. Cis­co, for exam­ple, is build­ing improved com­mu­ni­ca­tion (ICT) net­works for smarter cities. Each of the three cities above have some smart city ini­tia­tives under­way, from Charlotte’s ear­ly ener­gy effi­cien­cy efforts with Duke Pow­er and 5G cell nodes for trans­porta­tion improve­ments to Denver’s recent smart trans­porta­tion grant from the Depart­ment of Trans­porta­tion (DOT) to Austin win­ning one of five Smart City Coun­cil Chal­lenge grants in 2016. From a future growth poten­tial, more smart city ini­tia­tives should spur faster eco­nom­ic growth. But a key future ques­tion lingers: at what point does faster growth off­set a high­er qual­i­ty of life as we’re see­ing now in the Bay Area’s rapid growth?

For com­pa­nies search­ing for growth, I’m find­ing many of my clients are not ful­ly explor­ing cur­rent fast grow­ing cities, let alone smart city ini­tia­tives. It’s not just new prod­uct or ser­vices oppor­tu­ni­ties, but what new part­ner­ships or inno­v­a­tive plat­forms are pos­si­ble? From our expe­ri­ence with inno­va­tion and new col­lab­o­ra­tive ini­tia­tives, there are excit­ing growth oppor­tu­ni­ties still untapped with cities.