Cost-conscious firms looking to urban core

The Economy

Availability of labor, long-ignored land proving boon to cities

May 16, 1999|By Jay Hancock

BALTIMORE'S March unemployment rate was 6.8 percent, a nine-year low and about the same level as the jobless rate of the nation a few years ago.

Baltimore had 407,000 jobs in March, 9,000 more than it had at the same time last year and the highest city employment since 1994.

Baltimore home sales popped 42 percent last year, and prices in better neighborhoods are up as much as 20 percent from a year ago.

Say thanks to the roaring economy, obviously.

But more may be going on in Baltimore and other core cities than just echoes of an economic boom.

As oil stays cheap and cars abound, as the Internet disperses workers ever farther, as air fares imitate taxi fares, some people think there are new reasons for Americans to live and work close together on their historic urban ranges.

"Some of the recent gains in urban core economies are likely due to longer-running structural changes," not economic adrenalin, says Mark Zandi, an economist with Regional Financial Associates, a forecasting firm near Philadelphia. He goes further: "In some respects, the urban core is the beneficiary of the new economy."

Important, Zandi argues, are the tapped-out resources that strain the whole economy. The same forces making companies hire barely qualified workers and activate mothballed assembly lines are also making them consider previously ignored real estate.

At the same time, low inflation and fierce, electronically turbocharged competition are making it almost impossible for firms to raise prices. The way to improve profits is to cut costs.

"What easier way to control business costs than to locate and expand in relatively low-cost regions?" says Zandi. "For many businesses, the urban core is increasingly less costly."

Make no mistake. Doing business in cities does not cost the same as doing business in Pretty Prairie, Kan. But urban costs and "greenfield" costs are converging across the country.

In shiny suburbs like Hunt Valley and Columbia, businesses pay as much as $24 per square foot of top-notch office space. That's in the range of what downtown Baltimore offices cost.

The gap is bridged by suburban space shortage, which is aggravated by Gov. Parris N. Glendening's "Smart Growth" policies that limit sprawl and channel development into areas that already have roads, schools and police forces to support it.

Smart Growth, in various forms, is being promoted in many regions.

Tax spread

The tax spread between suburb and core may be narrowing, too.

Cities such as Philadelphia have been trimming taxes. Suburbs, meanwhile, are raising taxes to pay the cost of sprawl. (Baltimore's property tax, however, still crushes that of its surrounding counties.)

The overall cost of doing business in the suburbs scores 99 on an index where the national average is 100. That's up from 95 in 1980, Zandi said. Center cities' score was 104 -- down from 112 in 1980. Noneconomic costs such as crime and pollution seem to be falling for cities, too.

The surge of the "knowledge economy" underscores the importance of being close to knowledge centers such as the Johns Hopkins University. Generally these centers are in cities.

And, little by little, charter schools and vouchers are eroding the government's poor-performing monopoly on schools in many cities.

Labor supply important

The biggest pull toward the center may be labor supply, though. Not only are unemployment rates higher in cities, which means more available workers. (In Howard County, the jobless rate was less than 2 percent in March.) But geometrical logic shows that hanging a shingle in the hub of a dispersed economy gives an employer access to the highest number of potential workers.

Maybe that's why companies such as DAP Inc. and Sylvan Learning Systems Inc. set up headquarters downtown recently.

"I haven't seen the data on it, but I suspect that you're experiencing some corporate in-migration, which was unheard of 10 years ago," said David Gillece, a vice president with real estate firm Colliers Pinkard and former president of Baltimore Economic Development Corp.

"My thought has always been that if there is a labor shortage of any sort, it seemed that center cities would be the large, regional catchment area for employees. I certainly believe that there are an awful lot of structural forces in place that suggest central cities should make a comeback."

The next recession will offer an interesting test of this hypothesis.

Pub Date: 5/16/99

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