Economist’s View: The Long, Uneven Road to Recovery

While GDP forecasts remain highly optimistic, not all recoveries will be equal.

In my March 2021 essay, I sought to make two principal points. First, in an economy and real estate market event that is more a non-linear disruption than an expression of a typical business cycle or real estate supply/demand cycle, making the kind of quarter-to-quarter or year-to-year comparisons typical of economic commentaries is a temptation to be avoided.

If we want to measure where we stand against the very depth of the economic collapse a year ago, then in fairness that measurement should simultaneously report how far we must go to regain the pre-pandemic peak. That’s when we can assess, in a responsible way, where the U.S. stands in mid-2021.

The second point identified two camps whose views are helping shape and articulate what we should expect of the future: the restorationists and the transformationists. The restorationists can be recognized by the fundamental question, “When will be get back to normal, even if it is a ‘new normal’?”

The transformationists—the camp toward which I tend—recognize that while the pandemic has not wiped the slate clean as far as economic history is concerned, there are discontinuities abounding that create opportunities for investment, development and property operations.


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Hugh Kelly
Hugh F. Kelly

Keeping those points in mind, I’d like to take a perspective on the way this year’s economic growth may land on real estate markets. By most forecasts, the macroeconomic surge is expected to be extraordinary: real GDP growth above 8 percent in the second quarter and still above 6 percent in the third quarter. These are numbers that haven’t been seen in decades. Furthermore, both residential and non-residential fixed investments are anticipated to increase at an even faster pace.

What are the implications? Let’s start by recognizing that GDP, as well as property investment, is not distributed evenly across the country. Half of total U.S. output is generated by just two dozen of the nation’s 384 metropolitan areas. And the falloff from number one (the New York metro at $1.7 trillion) to number ten (Atlanta at roughly $400 billion) to number 20 (Riverside/San Bernardino, at $187 billion) is exceptionally steep. Even if the expected GDP growth is not distributed pro-rata, we should anticipate that the short list of top tier metros will enjoy an outsized share of 2021’s economic expansion.

Why would this be? It is because the top tier cities are the nation’s most productive, as measured by Gross Metro Product per capita. Five metros (Boston, New York, San Francisco, Seattle and Washington, D.C.) generate between $70,000 and $90,000 in per capita output. The next five most productive areas are Los Angeles, Dallas, Denver, Austin and Portland, with between $63,800 and $67,800 in GDP per capita. Atlanta, at $56,800, ranks 48th by this metric, close to the $54,400 U.S. average. Miami (ranked 103; $48,100) and Phoenix (148; $44,500) are productivity laggards, as is Riverside/San Bernardino (342; $29,700).

Since the onset of the pandemic, local economic impacts have been widely disparate. The rallying cry, “We are all in this together,” fails to account for the unevenness in the COVID-19 era. As measured by relative employment change, it is Atlanta that has most closely tracked U.S. job patterns in the pandemic lockdown and partial economic reopening. Some Sunbelt metros—most notably Nashville, Austin, and Phoenix—find themselves outperforming the U.S. norm, with an aggregate 6.0 percent job decline year-over-year through the first quarter of 2021.

Other markets such as New York, Boston, Miami and Los Angeles have substantially more ground to make up. This may seem troubling, but it also might be that those cities might become overperformers as they return to previous levels of labor force utilization.

That last condition is key. And while it might appear that such an argument depends upon a ‘restorationist’ perspective, I would maintain that it is the ability of those metros to be innovative in leading the way to new ways of working and living that will chart their economic futures, and the success of their real estate markets. The four cities named as needing to make up ground are also ranked high in the 2019 list of Most Innovative Cities by the 2ThinkNow innovation analysis: New York (2), Los Angeles (3), Boston (4) and Miami (15).

Perhaps a significant sign of corporate confidence in such a ‘transformationist’ future is the expected tally of Google employees in New York, at 14,000 workers by 2022 largely in older, formerly industrial buildings in Manhattan’s Chelsea and Tribeca neighborhoods. Together with Amazon and Facebook, Google job postings have contributed to New York leading the nation in tech sector openings in the past year—outstripping such venues as San Francisco, Seattle, San Diego and the North Carolina Research Triangle.

Talent and productivity are the keys to transformation, largely because they are the keys to profitability. And, as real estate executives know well, it is profits that pay the rent.

Hugh F. Kelly is director of graduate programs & chair of the executive advisory council curriculum committee at the Fordham University Real Estate Institute, and chair of the institute’s executive advisory council curriculum committee. He is a principal at Hugh F. Kelly Real Estate Economics, a consultancy. Kelly is the author, most recently, of “24-Hour Cities: Real Investment Performance, Not Just Promises” (Routledge/Taylor & Francis)

Read the June 2021 issue of CPE.

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