THE EMERGENCE OF DOWNTOWN REVITALIZATION

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1 VOL. 34, NO. 5 The Spread of Urban Culture IN THIS ISSUE * The Spread of Urban Culture Downtown revitalization is changing patterns of economic development. In this issue, trends in urban redevelopment are highlighted. * The Metroplex Region The state s Metroplex Region is home to nineteen counties and two metropolitan statistical areas (MSAs), the Dallas-Fort Worth-Arlington MSA and the Sherman-Denison MSA. Around 7.46 million residents (26.99% of the state s total population) live in this area. * Economic Development News Around the State Economic development activity in the Lone Star State continues to flourish. Check out this section for details on the latest business relocations, projects, and expansions across Texas. * Focus On: Population A breakdown of population by metropolitan statistical area (MSA) provides a quick look at the forecast for 2016 to See page 7 to get a snapshot of the anticipated growth for the state as well as for an MSA near you. Downtown areas are integral to the character of a city, from historic buildings to cultural experiences. Although development patterns in recent decades have diminished their traditional role, a renaissance is now underway. Downtowns are again representing the core of a city s professional and cultural spheres, providing a place for people to come together for all aspects of life. The growing importance of a city center around which a community can cluster is leading to new patterns in economic development. THE EMERGENCE OF DOWNTOWN REVITALIZATION In recent decades, an increasing proportion of the population of the United States has chosen to live in and near cities rather than in rural areas. According to the Census Bureau, from 2000 to 2010, population in urban areas expanded by 12%, significantly outpacing the overall growth rate in the nation. The urban area population, defined by the Census Bureau and in this report as those living in areas with at least 2,500 people, comprises more than 80% of the US total population (as of 2010), and the proportion continues to rise. For some historical context, only a little over 50% of the nation s population lived in urban areas in the 1920s, with 70% in the 1960s. While the trend toward a more urban population has been ongoing for decades, most of the growth from the time of the widespread adoption of air conditioning in homes and cars until very recently has occurred outside of the areas traditionally viewed as downtown or the center city, although that is often what the term urban brings to mind. While the trend toward a more urban population has been ongoing for decades, most of the growth from the time of the widespread adoption of air conditioning... The areas of early cities now recognized as downtowns were at one point virtually the entirety of a city, with a mix of residential, commercial, industrial, governmental, cultural, and religious uses. Once cities began to grow and expand, however, specialized districts for residential, manufacturing, and other uses developed outside the original city center, leaving downtowns to become specialized commercial districts. In most cities, the population living in city centers shrank, and downtowns soon only housed the poor and working classes which could not afford to live in the new residential suburban neighborhoods. THE PERRYMAN GROUP n Page 1

2 Rural vs. Urban Population, ,000, ,000, ,000,000 Rural Population Urban Population 200,000, ,000, ,000,000 50,000, Source: US Census Bureau Following World War II, mass produced housing increased the outflow to suburbs as families looked for more space to accommodate the Baby Boomer generation. In addition, the beginning widespread use of automobiles and the subsequent high-speed highways started to create new suburban centers offering housing, employment, retail, and entertainment. These new developments bled commercial business out of downtowns, which began to fall into decay. Early urban renewal efforts, mostly sponsored by the federal government, fought against declining interest in downtowns but often led to the destruction of historic buildings in favor of new office and retail buildings. While these efforts had mixed success, they often hurt the character and culture of downtowns. Furthermore, these initial efforts to attract business back into the area were often insufficient to generate an adequate consumer base. Even if a downtown had attractive cultural or entertainment venues, consumers would come to the area for one purpose and depart once it was completed. More recent movements for downtown revitalization have been led by private developers or public-private partnerships and have tried to take advantage of abandoned buildings and lower real estate values. In addition, cities have recognized the importance of developing their downtowns in order to enhance the unique character of their area and have created public-private partnerships to leverage resources in a way that is beneficial to the entire community. These partnerships often provide development-friendly policies, city funding, and tax incentives in order to encourage development within the downtown area. Dozens of Texas cities have used this mechanism, and the results are quite encouraging. For example, according to the Urban Land Institute, after implementing policies in 2012 to aid downtown development, San Antonio has invested in 29 projects and committed $170 million in city bond funds in 2017 alone. Cities and developers are now seeking to create communities where consumers can live, work, and play all in one location. Cities and developers are now seeking to create communities where consumers can live, work, and play all in one location. Modeled after city centers in Europe and other international destinations which have always been the cultural cen- Page 2 THE PERRYMAN GROUP

3 ter of the community, revitalization efforts have become increasingly entertainment and housing driven. As the American population continues to grow more diverse, there is a greater demand for non-traditional housing such as condos and apartments with amenities. One survey performed by the American Planning Association found that less than ten percent of Millennials and Active Baby Boomers preferred to live in the traditional, auto-dependent suburb. The surge of downtown housing has been a major game changer for many communities. Americans are increasingly drawn to communities where they can feel connected and that have easy access to amenities, convenient transportation options, and aesthetically pleasing public spaces. There are numerous characteristics of downtowns that can make these areas an attractive place to live. Americans are increasingly drawn to communities where they can feel connected and that have easy access to amenities, convenient transportation options, and aesthetically pleasing public spaces. Since downtowns are mostly compact and dense by nature, they offer a walkable community for residents to enjoy. According to analysis by the Brookings Institute, people only want to walk up to 1500 feet before seeking another form of transportation. Walkable communities, or even areas with efficient public transportation, offer a convenience that can attract consumers to the area, whether to live or to spend an extended period of time. With increased traffic congestion in major cities, a downtown that is walkable and can be accessed with public transportation provides an attractive destination. Further investments in enjoyable public spaces, including parks and streetscape elements like crosswalks and bike lanes, also aid in building the local character and desirability of an area. In order for any downtown revitalization effort to be successful, positive momentum must be created that can draw further development into the area. Downtown residents provide steady demand for the nearby businesses, which not only supports sustainable commerce but also provides a sense that something is happening in a downtown. Downtown areas, as opposed to the suburbs where space is desired, typically follow the mantra more is better. The more activity that happens in a downtown, both business and leisure, the more people will want to live, work, play, and interact there. The more people are drawn to an area, the more businesses will want to locate there, providing a virtuous cycle to maintain and increase economic development. URBAN POPULATION TRENDS While the downtown revitalization has become a major focus for many cities, there is mixed data on how successful the efforts have been. Over the past decades, there has been a steady increase in the number of residents living in downtowns, particularly among younger generations. According to the Brookings Institute, during the 1990s, the number of households living in downtowns increased by 13 percent in a sample of 45 US cities. This trend continued in the 2000s, when, for the first time, more college graduates moved to the downtown area of the 50 largest metros than to the suburbs. In order for any downtown revitalization effort to be successful, positive momentum must be created that can draw further development into the area. Downtown populations particularly surged in the years following the 2008 recession, in part due to the availability of jobs in larger cities but also reflecting the major shift in where people desire to live. In 2011, population growth in the urban core of cities outpaced the population growth in the surrounding suburbs. However, the growth in downtown populations has recently slowed compared to growth in suburbs (growth in the major cities only accounted for 20% of national growth in 2015 compared to 26.7% in 2011), but in many ways this pattern can be expected. One reason for the shift is that while there will always be space for more housing options in the suburbs, the supply is limited in downtown areas, thereby constraining potential growth. In addition, downtown living options tend to be more expensive than suburban options, making it more difficult for individuals to live downtown because of the price and budget constraints. So while downtown population growth has been normalizing, the influence and desirability of an urban lifestyle still remain. continued on page 6 THE PERRYMAN GROUP Page 3

4 An Economic Overview H The Metroplex Region The state s Metroplex Region is home to two metropolitan statistical areas (MSAs), the Dallas-Fort Worth-Arlington MSA and the Sherman-Denison MSA. There are also nineteen counties located within the area. Around 7.46 million residents (26.99% of the state s total population) live in the region. The area is also responsible for 31.29% of the state s real gross product (RGP or output) and represents 29.68% of all wage and salary jobs in Texas. The Metroplex Region s population is forecast to grow by about 634,510 over the short term ( ). The gain indicates a compound annual growth rate (CAGR) of 1.65%. Real personal income (RPI) is projected to expand annually by 4.61% and real retail sales by 4.75% during the same five-year period. One of the most dynamic areas in the country, the Metroplex Region is seeing tremendous economic growth. The Dallas metro area (which includes the cities of Plano and Irving) is at the top of Forbes 2017 Best Cities for Jobs list. Major corporate projects from companies such as Toyota, Liberty Mutual, Charles Schwab, Jacobs Engineering, and State Farm are all big contributors to the area s success in job creation. In Fort Worth, American Airlines has broken ground on its new five-building, 1.8 million square foot headquarters campus on 300 acres. Nearby in Arlington, warehouse construction is on the increase. UPS is working on a $200 million shipping center that will employ 1,400 workers, and FedEx is leasing a 365,000 square foot distribution facility that will open in Recent economic development activity is also making news in the city of Sherman. Cassini Gateway I, a one million square foot data center project, is expected to create 300 construction jobs and 150 permanent jobs over the next five years. Region s RGP to See Short-term Gains Real gross product for the area is forecast to expand at an annual rate of 4.11% from 2016 to By 2021, total RGP for the Metroplex Region will reach nearly $572.7 billion. The graph below highlights total RGP for all of the area s sectors for the year Projected Sectoral Composition of Real Gross Product for the Metroplex Region 2021 Services 25.67% Agriculture 0.13% Government 6.55% Mining 7.21% Construction 4.01% FIRE 17.90% Durable Mfg. 8.36% TWU 4.45% Information 6.67% Nondurable Mfg. 4.45% Trade 14.61% Employment Outlook for Metroplex Remains Strong Wage and salary employment in the region is expected to grow at a CAGR of 2.23% over the next five years. With a gain of 436,290 jobs during the short-term period, total employment for 2021 is forecast to top out at 4.18 million. The table below includes projected employment growth and annual expansion rates, along with the percentages of total employment in 2021 for the various sectors. Growth in Employment in the Metroplex Region by Industrial Sector: Compound Percentage Annual Jobs Gained of 2021 Growth Rate Employment Agriculture 0.53% % Mining 3.85% 5, % Construction 1.57% 15, % Durable Mfg. 0.94% 9, % Nondurable Mfg. 1.04% 4, % Trade 2.13% 68, % TWU 1.71% 15, % Information 1.52% 6, % FIRE 1.44% 22, % Services 3.06% 260, % Government 1.15% 26, % Note: TWU is Transportation, Warehousing, & Utilities FIRE is Finance, Insurance, & Real Estate Source: The Perryman Group Compound Annual Growth Rate reflects changes in the size of the base used to calculate growth. Page 4 THE PERRYMAN GROUP

5 Economic Development News from Around the State Gainesville: A new headquarters is in the works for the oldest state bank in Texas. First State Bank constructing a 75,000 square foot office building for about 140 employees. Hockley: Daikin Industries Ltd. unveils 4.1 mln sq. foot plant in Waller County. HVAC unit manufacturer s facility houses almost 1,000 workers and could grow to 4,000. Amarillo: Xcel Energy s $42 mln office building opens with staff of around 300. Downtown tower includes 5,000 sq. ft. ground floor retail space with a new Jimmy John s. Weslaco: Construction on 40 hangars at Mid Valley Airport to get underway soon. Targeting private plane owners, project will join the airport s recently extended runway. San Marcos: Berry Aviation, Inc. is expanding local operations at regional airport. New facility to include 20,000 sq. ft. maintenance hangar and 10,000 sq. ft. of office space. The Woodlands: After 3 years under construction, 193-bed hospital is complete. The $328 million Houston Methodist healthcare complex spans a total 470,000 square feet. Big Spring: Twin Eagle is adding on to its frac sand facility at Permian Rail Park. With 6 new 18-story silos, the company expects to increase storage capacity by 30,000 tons. Wichita Falls: $55 million project underway for Vitro Architectural Glass facility. Fifty jobs will be added to its local workforce with the installation of a new jumbo coater. Tyler: Energy firm KP Engineering, LP constructing 25,000 square foot building. The growing company s new state-of-the-art offices to be built next to its current location. Frisco: Hotel lifestyle campus to be part of the $1.8 billion Frisco Station project. Four hotels featuring 600 total rooms will join the massive 242-acre development in San Antonio: Ground broken on 153,000 sq. ft. Science and Engineering Building. University of Texas San Antonio s $95 million construction project is biggest in its history. Belton: Designer and manufacturer of drilling products announces expansion plan. Belltec Industries to add 14,500 sq.ft. of space, acquire new equipment and create 10 jobs. Want to include a business announcement for your community? Let our editors know what s taking place in your neck of the woods. Share the details of recent economic development happenings in your area. The Perryman Report & Texas Letter is read monthly by the state s most notable leaders. submissions to info@perrymangroup.com or send fax to THE PERRYMAN GROUP Page 5

6 continued from page 3 Although nationally the growth pace of downtowns has slowed (though it remains higher than before the recession), regionally there is a different story. Some of the fastest-growing cities are found in the South and West, mirroring the general trends in population growth over the past few decades. In fact, 10 of the 15 fastest growing cities in 2016 were in the South and four of the top five were in Texas (namely Conroe, Frisco, McKinney, and Georgetown). The Austin- Round Rock metropolitan area was the third fastest growing in the US in period with a population increase of 2.9%. As these cities and metropolitan areas expand, there is typically accompanying activity in their downtown areas. Many experts posit that downtowns in the Sunbelt Region are more likely to grow due to the weather being more amenable to a walkable community. According to a ranking by Realtor.com, Austin and Dallas are among the top ten cities where downtowns are making a comeback. THE MILLENNIAL EFFECT Downtown living is particularly popular among Millennials, the generation that is now the largest age bracket, who were born mostly in the 1980s and 1990s. According to Avison Young, Millennials have found the urban life style as an attractive option for numerous reasons, including delays in starting a family, dislike of long commutes, increased difficulty in buying a home, and the desire to live near amenities such as gyms, bars, and music venues. A Nielsen survey found that 62% of Millennials would prefer to live in a mixed-use community like that ones that exist in urban centers and 40% would like to live in a city center area in the future. Millennials have had a major impact on the revitalization and development efforts in Austin, downtown Houston, and Uptown Dallas. In fact,these three cities are listed in the top ten cities for the highest concentration of millennials and Austin has the most Millennials per capita out of any urban market in the US. Through efforts of many publicprivate partnerships, cities and developers are bringing culture and activity back to the long forgotten areas of American downtowns... THE EMERGENCE OF NEW URBANIZED AREAS For the most part, individuals living in revitalized downtown areas tend to be more educated and have higher incomes in order to afford the higher rents. Others may have an interest in living in downtowns but have been priced out. Regardless, the demand for the urban lifestyle has remained as downtown growth has normalized, providing opportunities for new areas to capitalize on this trend. The result has been growth in demand for mixed-use developments in non-traditional markets, away from the already dense and expensive large cities. Many suburbs are now using an urban-oriented strategy when it comes to developing by adding more walkable downtown areas, mixed housing, and transit-friendly locations. This concept, called the urban burb, allows residents to enjoy the benefits of an urban environment but in a more affordable suburban location. They may also be more desirable locations for Millennials that are settling down and having children. CONCLUSION Because downtowns by nature have limited space, in some ways they cannot compete with suburbs for higher growth rates. In fact, the areas of the country that are growing the fastest are the low-density suburbs. Even so, a vibrant downtown can enhance the path of growth for the surrounding suburbs in a variety of ways ranging from increasing tourism to attracting new corporate locations and expansions to improving the attractiveness of an area to highly skilled workers. The downtown revitalization movement has encouraged the emergence of such areas as viable locations for residential living. As the urban lifestyle has become more popular, the greater number of people living downtown has provided a consumer base for new businesses, adding greater success to downtown developments than has been seen in the past. In addition, revitalization efforts have highlighted some of the features that make highly urban locations attractive to potential residents. By applying concepts from downtown revitalization such as use of public spaces and mixed-use developments, new, smaller cities have the opportunity to attract new residents and businesses. From an economic development perspective, the revitalization of downtown areas can have a substantial positive impact on entire communities. Through efforts of many public-private partnerships, cities and developers are bringing culture and activity back to the long forgotten areas of American downtowns, restoring their purpose as a true city center. Page 6 THE PERRYMAN GROUP

7 FOCUS ON: Population Compound Population Annual Major Metropolitan Population Population Gain Growth Rate Statistical Areas Austin-Round Rock MSA 2,011,665 2,226, , % Dallas-Plano-Irving MD* 4,736,043 5,158, , % Fort Worth- Arlington MD* 2,410,397 2,606, , % El Paso MSA 853, ,370 56, % Houston-The Woodlands- Sugar Land MSA 6,687,751 7,316, , % San Antonio- New Braunfels MSA 2,398,836 2,622, , % STATE OF TEXAS 27,647,888 29,899,467 2,251, % Compound Population Annual Other Metropolitan Population Population Gain Growth Rate Statistical Areas Abilene MSA 171, ,220 10, % Amarillo MSA 263, ,136 14, % Beaumont- Port Arthur MSA 408, ,744 12, % Brownsville- Harlingen MSA 429, ,635 31, % College Station- Bryan MSA 250, ,535 24, % Corpus Christi MSA 458, ,061 33, % Killeen-Temple- MSA 433, ,480 30, % Laredo MSA 272, ,592 19, % Longview MSA 220, ,310 10, % Lubbock MSA 311, ,671 20, % McAllen-Edinburg- Mission MSA 853, ,478 72, % Midland MSA 166, ,321 15, % Odessa MSA 157, ,804 11, % San Angelo MSA 120, ,698 8, % Sherman-Denison MSA 126, ,659 8, % Texarkana MSA 94,036 97,399 3, % Tyler MSA 223, ,083 15, % Victoria MSA 100, ,865 7, % Waco MSA 263, ,607 12, % Wichita Falls MSA 152, ,030 3, % *Metropolitan Division (Part of the Dallas-Fort Worth-Arlington MSA) Source: The Perryman Group THE PERRYMAN GROUP Page 7

8 ADDRESS SERVICE REQUESTED 510 N. Valley Mills Drive, Suite 300 Waco, TX A B O U T O U R S E R V I C E S The Perryman Group (TPG) is a team of highly skilled and focused analysts who stand ready to tackle any economic information task. Our in-house professionals bring expertise in finance, statistics, economics, mathematics, real estate, database management, valuation, programming, systems analysis, engineering, technical communications, and marketing. Dr. Ray Perryman, President and CEO, has almost 40 years of experience in developing systems, analyzing complex problems, and communicating effectively. Services provided by The Perryman Group include: n Economic Impact Assessment, Public Policy Studies, and Economic Development n Complex Business Litigation, Regulatory Matters, and Dispute Analysis n Forecasting and Customized Economic Modeling n Speeches and Testimony n Additional Areas of Practice Market and industry analysis, Statistical modeling and analysis, Survey and demographic studies, Economic research and information, Feasibility studies and business plans, Business and product valuation For more information, contact Ray Perryman by ing info@perrymangroup.com or calling on Twitter Like us at facebook.com/perrymangroup Follow us linkedin.com/company/the-perryman-group M. RAY PERRYMAN, PhD President and Chief Executive Officer, The Perryman Group Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies Dr. Ray Perryman is President and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. His firm has served the needs of more than 2,000 clients ranging from major corporations to small startups and from local communities to the federal government. Over the past 30 years, Dr. Perryman has helped recruit corporations providing tens of thousands of jobs through economic development work, resolved billion-dollar legal issues, and revamped public policy through impact assessments and other studies. His firm has measured economic impacts for corporate locations and expansions involving billions in investments, and his economic forecasts are used by corporations and government agencies alike. Dr. Perryman has provided economic analysis and expert testimony for civil litigation across a wide range of practice areas. His list of clients includes nationally renowned law firms and Fortune 500 companies and his expert opinions have helped shape important legal decisions. Author: M. Ray Perryman Contributors: Virginia Gleghorn, Cristin Hulyk, and Nancy Risinger Graphics & Layout Director: Shelia W. Smith Research/Editing Assistants: Karen Amos and Elodia Cavazos Technical Advisor: Pete Tamez For subscription information, call For information about our corporate services, economic forecasts, and other reports, call Fax: info@perrymangroup.com Texas Economic Publishers, Inc. is a division of The Perryman Group 510 N. Valley Mills Dr., STE 300, Waco, TX Page 8 n THE PERRYMAN GROUP