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The Car Is King Once More: Markets With Less Transit Could Be More Popular

For the past decade, mass transit has been the engine driving economic development in major American cities.

But as those cities emerge from their pandemic-induced comas, their workers’ preferred method of commute — if they commute at all — has flipped.

The Car Is King Once More: Markets With Less Transit Could Be More Popular
Transit-reliant cities may find reopening harder than cities that have options, like plenty of cars.

“The winners in part are going to be the car,” said Mario Polése, the urban economist at the Institut National de la Recherche Scientifique in Quebec. “Cities which are less dependent on transit probably will recover more quickly.”

By the same token, cities that rely on mass transit are going to have a more complicated time reopening their economies, especially with the Centers for Disease Control and Prevention encouraging people to drive themselves over using mass transit or ride-sharing. A JLL survey released this month found 34% of office workers who previously used transit plan to seek alternate forms of transportation for their commutes.

That could create an opening for owners of commercial real estate in markets like Atlanta, Nashville and Austin, where transit accounts for under 5% of commutes.

“Clearly, the fact is [being] not heavily dependent on transit in the short term is a positive,” said Heidi Learner, a noted economist who is now head of Americas research for CBRE Global Investors.

As some local economies recover faster than others, they could induce people, and the companies that employ them, to follow the money. Over the past few years, New York, Chicago and Los Angeles, were already losing population, while metro regions in the South and Southeast, where the cost of living and the cost to operate businesses are lower, have seen surges in domestic migration.

While many of those up-and-coming markets have invested in mass transit networks, especially as their downtown populations have boomed, their car-dominant commuting patterns have made reopening and the economic recovery a smoother transition.

“I do think that in the case of New York, COVID has uncovered a key vulnerability of the Northeast,” Wells Fargo Managing Director and Senior Economist Mark Vitner said. “A big reason why the virus spread so much is because people took mass transit to work every day, and those train rides are pretty long.”

While recent studies in Paris, Austria and Hong Kong dispute the notion that taking mass transit gives riders a high risk of contracting the coronavirus, the damage to its reputation has been severe.

Savills' Heidi Learner
Heidi Learner, chief economist at CBRE Global Investors, at a 2017 Bisnow event.

Transit systems across the country are suffering from a huge drop in ridership. Global transit ridership was down on average by more than 70% in April compared to pre-pandemic levels, as people sheltered in place and experts warned about exposure in trains and subways, according to data compiled by Transit, a transportation app provider. Ridership levels have slowly recovered since, but are still down by more than 50%.

Many transit systems across the nation have cut service to preserve dwindling resources as riders stayed home. That includes New York's subway system, which ceased operating 24 hours a day for the first time in 115 years, and San Francisco's Municipal Transit Agency, which stopped rail operations and cut 70% of its bus routes.

The New York metro area led the nation last year in commuter use of transit at 31%, according to Experian data compiled by Site Selection Group. San Francisco was second with 15.5% of the workforce using public transit, followed by Washington, D.C., with 13.47% and Boston with 12.34%.

“Mass transit is the great hurdle” for New York, Mary Ann Tighe, the CEO of CBRE's New York Tri-State region, told The Wall Street Journal last month.

But for most cities in the Sun Belt, transit has never been the primary means of commuting to work. In Metro Atlanta, 3.27% of commuters used public transportation, according to Experian. Other Sun Belt cities have even fewer commuters: Three percent of Charlotte commuters use transit, Houston tallies 2.34%, Dallas has 1.41%, and fewer than 1% of commuters in Asheville, North Carolina, and Nashville use transit.

For those cities, reopening the economy is an easier prospect, Newmark Knight Frank Executive Vice President Sean Moynihan said.

“You don't need to be focused on mass transportation if more of your workforce is working from home,” Moynihan said. “[Atlanta] is not trapped on an island. We're spread out.”

Many of these car-centric cities have already experienced strong economic and population growth during the past decade, and a quicker localized recovery could accelerate that trend. In recent years, that growth has come at the expense of more transit-dominant cities: the New York metropolitan area lost 60,000 people between 2018 and 2019, according to the U.S. Census Bureau, while Greater Chicago lost 26,000 residents. While the San Francisco Bay Area has still gained population in recent years, it was growing at a rate of 1.4% a year from 2012 to 2015. Between 2018 and 2019, it grew by 0.1%.

Since the pandemic began, more than 420,000 New Yorkers left the city. A similar exodus is playing out in the Bay Area, and it is unclear how many will return — and where the people who don’t will go.

As those markets lost people, the Sun Belt won them, and companies followed. Businesses found states like Georgia, North Carolina, Tennessee and Texas cost less to operate in than coastal markets and offered big incentive packages to relocate or open new offices.

Texas has benefited from a mass exodus of companies leaving California, including Toyota North America, Charles Schwab and Kubota Tractor Corp. AllianceBernstein moved its headquarters from New York to Nashville. And this year, Facebook, Google and Microsoft declared their intent to open major offices in Atlanta (Facebook is also adding at least 1.5M SF of offices in New York).

The trend could accelerate in the months and years ahead, said John Boyd, a site selection expert and founder of The Boyd Cos.

“We're entering an era of corporate cost-cutting because of the economic downturn,” Boyd said. “The markets that will rebound the quickest are low-cost, pro-business, many of which are in the Sun Belt because their fiscal houses are in order.”

The Car Is King Once More: Markets With Less Transit Could Be More Popular
MARTA heavy rail at the North Avenue Station in Atlanta.

Georgia was one of the first states to begin lifting shelter-in-place orders, allowing nonessential businesses to reopen. New York and other Northeastern states began lifting those orders in late May and early June, but the New York Metropolitan Transportation Authority has struggled with how to practice social distancing on a system designed to get lots of people around the city.

“I know a lot of people are spooked about the idea of riding a train or a bus and that’s understandable,” Janette Sadik-Khan, a former NYC transportation commissioner, told Politico this month. “Getting people back to work depends on them having options for getting there. We have to solve this problem.”

By contrast, Atlanta’s speedier reopening from the coronavirus could be compelling for companies looking to expand or diversify office locations across other geographies, Portman Holdings Director of Leasing Travis Garland said. Portman is one of the most prolific developers in Metro Atlanta.

“Things that happen out of [companies’] control can shut a city down,” Garland said. “I just think there's going to be a realization to speed up decisions to locate in other cities.”

Other experts downplay the coronavirus’ impacts on office decisions. Many companies still favor sites close to transit stations when looking for new offices, Site Selection Group founder King White said.

“Companies will continue to consider public transit infrastructure an important site selection factor,” White said. “Companies are making long-term decisions when deciding where to locate their business. COVID-19 effects are short-term at this time.”

Paying for that infrastructure is going to be harder as government budgets are forced to shrink.

U.S. gross domestic product fell by 4.8% during the first quarter of this year, according to the U.S. Bureau of Economic Analysis, with businesses and consumers both pulling back during the pandemic. The U.S. economy is likely to fare worse by the end of the second quarter, as GDP is projected to plummet by 39.5%, according to independent business and research group The Conference Board.

U.S. cities could lose a combined $500B in tax revenue through 2022, said Brooks Rainwater, the director of the National League of Cities’ Center for City Solutions. That will force localities to de-emphasize transit expansion, especially without any help from the federal government, Learner said.

Already, the government infused $25B for public transit agencies in the federal coronavirus stimulus package. It is unclear whether the Trump administration is planning to give struggling systems another infusion —the administration is considering a $1 trillion infrastructure bill to help the ailing U.S. economy, but much of those funds would focus on roads and bridges, Bloomberg reports.

“Even reinvigorating the existing public transit system is going to take a backseat,” Learner said. “I don't see any way for this to really become the priorities for states at this time.”

Nevertheless, in car-dominant Atlanta, locals are pushing forward on a major transit expansion. Voters approved a half-penny sales tax in 2018 to expand the MARTA rail system, which is expected to raise $2.7B over 40 years. John Orr, who chairs the Atlanta Regional Commission’s transportation coordinating committee, said it is too soon to tell how the recession will affect the expansion program.

But a pandemic won’t deter officials from pursuing a more robust system, especially as its population grows.

“This pandemic is only going to be of a relatively short duration as it relates to a period of years,” Orr said. “Ultimately, as the economy continues to rebound and a vaccine is available, we'll still be a rapidly growing region.”