High Growth In Charlotte And Austin Not Enough To Crack JLL City Index Top 20
Sun Belt cities like Austin and Charlotte may attract big businesses and college graduates looking for a low cost of living, but the U.S. doesn't come close to economies in Southeast Asia in a new study focused on global growth.
Despite garnering high marks in previous years, the cities of the U.S. and Europe have seen their economic momentum surpassed, according to a report from commercial real estate brokerage JLL.
Late-cycle U.S. and European markets were locked out of the top 20 rankings in JLL's sixth City Momentum Index. This year's report, which tracks 131 emerging and established global markets and ranks them in terms of real estate and economic growth, focuses on short-term growth outlook.
“The Asian Pacific markets are really motoring. That’s very much on the back of strong demographics and growth in the middle class,” London-based JLL Global Research Director Jeremy Kelly said. “Interestingly, many of these cities have a strong emphasis on innovation and technology.”
Technology is driving significant real estate investment in Asian Pacific markets as well as Nairobi, Kenya, the only non-Asian Pacific market to crack the top 20. Bangalore, which has the top ranking, has emerged as a global hub for technology and electronics. It also has a growing startup scene and is home to five of India’s eight startups with a valuation of at least $1B.
While India still has room to grow in terms of business transparency, JLL cites the country’s reform-driven government keen on boosting real estate transparency and reducing corruption as a factor in why five other Indian cities — Hyderabad (No. 2), Delhi (No. 4), Pune (No. 5), Chennai (No. 7) and Kolkata (No. 15) — ranked so high.
“It’s about cities moving up the value chain,” Kelly said. “Bangalore has shifted from a low-cost location into a high-value one. The cities that are in the top set are very much those effectively building their cities out.”
Building out cities with significant infrastructure investment helped China land nine of its cities in the top spots: Xi’an at 9, Guangzhou at 10, Nanjing at 11, Beijing at 13, Shanghai at 14, Chongqing at 16, Hangzhou at 17, Shenzhen at 19 and Chengdu at 20. JLL attributes the combination of massive investment in real estate, rail networks and airports as to why China is home to most of the world’s most dynamic cities.
“The Chinese cities have had a unique road to maturity based originally on infrastructure,” Kelly said. “There are certain lessons to be learned from Chinese cities and their investment and commitment to infrastructure and increasing commitment to an innovation economy.”
The absence of U.S. cities in the top ranks stems from what JLL perceives is a late-stage economy and real estate market. The top American markets of Austin and Charlotte ranked 22nd and 24th, respectively. While tech-heavy areas in the U.S. didn’t rank as high as Asian Pacific markets, Kelly said Austin, Silicon Valley and Boston ranked higher in models focused on more long-term growth. The lower short-term growth rankings aren’t ruffling feathers in Charlotte and Austin.
“We are definitely a high-growth market, and that can largely be attributed to the quality of life and low cost of doing business here,” Charlotte-based JLL Director of Research Paul Hendershot said.
Compared to when Charlotte lost 57,000 jobs from the 2008 financial collapse, Hendershot said the city has learned its lesson and tried to diversify its former bank-centric economy, courting technology firms.
Honeywell announced a plan in November to move its global headquarters to Charlotte, which will create 750 jobs. North Carolina's biggest city averages 35,000 new jobs annually, according to JLL.
Charlotte is also putting a similar focus on infrastructure to the highly ranked Asian Pacific markets, albeit on a smaller scale. Charlotte Douglas International Airport, the second-largest hub for American Airlines, is in the middle of a $2.5B “Destination CLT” expansion project. Comparatively, Beijing Daxing International Airport, which will be Beijing's second international airport when complete, is expected to have a final price tag of nearly $14B.
Austin continues to ride a development wave also recognized by JLL. Austin’s 4% job growth is second in the U.S. only to Orlando, Florida, and technology companies continue to expand. Dell employs 12,000 people in the Texas capital, and Apple announced in December it will build a $1B, 133-acre Austin campus that will initially employ 5,000 people with the ability to scale to 15,000.
“It’s a very educated market and attracts a lot of talent because of the low cost of living and low crime rate,” Austin-based Cushman & Wakefield Director Lauren Fosen said.
There are more than 400,000 people in the Greater Austin collegiate system, and, coupled with Austin’s central location and Texas’ business-friendly reputation, technology companies see the region as an ideal place to grow, according to Cushman & Wakefield Managing Director Brian Butterfield.
Despite not ranking as high as most of the major markets in India and China, U.S. cities like Austin and Charlotte excel in terms of quality of talent and an ability to innovate. That translates to long-term growth and is something the Asian markets should follow as they mature, according to Kelly.
“There are bigger risk profiles in some of those markets compared to the U.S. and Europe,” he said. “Many of these cities need to focus on how they move into higher value activities so they aren’t beholden to volatility.”