I have given more than 200 speeches in most of the country’s major and secondary markets in the past two years. I probably have met and spoken with more people during this time than most will in a lifetime. Despite my travels far and wide, I was in northern New Mexico (Albuquerque, Santa Fe and Taos) this week for the first time.
Whenever I visit a new market, I study it in advance and pick other markets that are either similar (status quo) or at the next level (aspirational) with regard to commercial real estate. The markets I chose for Albuquerque, based primarily on its size, industry mix and location, were Tucson and San Antonio (status quo) and Madison, WI and Austin (aspirational). I knew I was onto something when the managing director of CBRE’s Albuquerque office, Jim Chynoweth, named these same four cities.
While I may appear knowledgeable on any given market, nobody knows a town like its residents. I learn far more from them than they do from me. But on a macro level, here are the main factors in rank order that can differentiate major New Mexican markets from their national competitors.
Based on recent polls of CBRE’s largest real estate occupier clients, availability of talent is consistently the No. 1 factor in their location decisions. In New Mexico, the biggest creator of this talent pipeline is, of course, the University of New Mexico. Local real estate marketers should double down on the strength of this university and its ties to the broader business community and beyond. A good example of this is Pittsburgh, which, through Carnegie Mellon University, has attracted some of the largest tech firms in the world.
UNM also should strengthen its international outreach, particularly in Asia. International students bring a lot more than full tuition; they bring employers, development dollars and innovation. The ability to attract international talent and capital is the No. 1 determinant of cities going from good to great. Do you think Seattle’s and Austin’s commercial real estate markets are great only because of their high concentrations of technology companies? No. It is because international talent is attracted to these growing tech centers and makes them two of the most vibrant cities in the world. As part of its recommended outreach in Asia, UNM should involve the chamber of commerce to attract Asian capital as well.
It is one thing to create a steady stream of talent from UNM; it is another thing to retain its graduates as workers in the state. The hip, cool, young scene is clearly growing in Albuquerque’s Nob Hill and in Santa Fe, but this must be more than just beer gardens and art galleries. It must be a total live-work-play environment that is fostered through both marketing and hard infrastructure.
We recently published a report entitled “The Eds & Meds Cure for Market Volatility” that details the positive impact that education and health-care institutions have on slower-growth secondary markets. Albuquerque should capitalize on this strength, particularly to attract young talent and older residents. Along with the government/military, Eds & Meds provide an important industry base for Albuquerque, which should be leveraged to create high-paying jobs similar to what markets like Pittsburgh and Raleigh have done.
One of my friends, Gary Famer, is a title insurance professional who moonlights as the unofficial head of the Austin Chamber of Commerce. His mission in life is to advance the Austin real estate market, and he began this effort at the airport. Mr. Famer successfully lobbied the airlines to add direct flights between San Jose and Austin, which he jokingly calls the “Nerd Birds”. I was very pleased to hear that Alaska Airlines now offers direct flights between Seattle and Albuquerque. From my personal experience, the city should now work on improving its direct air access to the East Coast.
The trick to successful infrastructure improvements is to choose them wisely. On a recent trip to Japan, I marveled at the well-kept roads, bridges, public buildings and other infrastructure. The Japanese government spent more than $5 trillion on new infrastructure over the past 20 years to jump-start the economy. But it has been to no avail.
Austin ran into a similar debacle. Given the city’s growth trajectory, a private company spent $1.3 billion on State Highway 130 to speed traffic at 85 miles an hour around the city. What happened to this road completed in 2012? Its toll revenue did not meet expectations and the company declared bankruptcy in 2016. Even the fastest-growing markets can’t snap their fingers and create infrastructure that works. Consider the current fate of the newly completed Spaceport outside of White Sands, NM and I’m sure you understand my point.
“Hip and cool” may define a live-work-play environment, but it shouldn’t define infrastructure improvements with the temptation to build high-profile, unproductive projects like the next “bridge to nowhere.” The only type of infrastructure that matters is that which stimulates growth. This often involves decidedly unhip or even invisible projects (widening highways, improving water treatment plants, modernizing rail lines, etc.). Spend your money leveraging your many tangible and objective strengths into highly productive, if often uncool assets.
Given how much I travel, I occasionally bring my wife on business trips and turn them into long weekends. Truth be told, with three young children and a dog, the two of us only get away once a year. Given New Mexico’s reputation for natural beauty, good food, high-end retail and cultural amenities, she accompanied me for our annual get away.
I am one of those guys who does not hide the ball on what I am and what I am not. One of the things I am not is an art guy. Nevertheless, my wife and I visited the Georgia O’Keefe museum in Santa Fe. Despite my admitted cynicism about art, something hit me while I was there. I never knew the depth, breadth and longevity of her work. From what little I initially knew, Georgia O’Keefe was famous for her paintings of flowers, desert scenes and animal skulls. But I found that these were just the tip of the iceberg. I was overwhelmed by her art and I considered myself in the presence of greatness. Suddenly, my concerns about key factors for commercial real estate growth seemed trivial.
What I saw was a key selling point for northern New Mexico in an unexpected place. Her art inspired me, as I am sure it has for millions of others. It should inspire the leaders of northern New Mexico’s commercial real estate industry to capitalize on the city’s cultural assets.
In the same poll where we asked large occupiers what matters most (talent), cost was well down the list. Albuquerque’s reputation as a low-cost market may attract some companies, but not necessarily the larger or high-tech occupiers that bring high-paying jobs (over $100k), which are force multipliers by creating even more jobs.
Let me be blunt: If you promote cost as your top attraction, get in line. Low cost is a commodity and you never want to be a commodity market. You want to be a market that drives the top line (revenues) of companies, not the bottom line by saving them a few bucks on rent. And when I say a few bucks, I mean very few. In CBRE’s recent “Scoring Tech Talent” report, the cost of occupancy is typically 5% or less of an employer’s operating cost. The other 95% is on labor. Deep pools of talent matter most to companies; the cost of that labor matters somewhat, and the cost of occupancy matters least.
Crime is a tough issue to discuss when visiting a market and I have typically avoided it. I recently made a video extolling the virtues of Chicago to real estate occupiers and investors. Our local Chicago team saw the first cut of the video and sent me back to the drawing board because I didn’t address the crime issue head on. Chicagoans are well-aware of this tragic issue, but are moving forward with one of the most vibrant commercial real estate markets in the country just the same.
The same thing happened to me in Albuquerque when the locals started telling me jokes about the television show “Breaking Bad” and the illegal drug crystal meth. It was funny up until when they told me that much of what was depicted in the show was true. I live in Baltimore and I wish “The Wire” were never made. The television show, depicting the local narcotics scene, is mentioned by potential Baltimore investors all over the world. Regrettably, folks in New Mexico are stuck with Breaking Bad, just like Baltimoreans are stuck with The Wire. While the truth hurts, we as a business community must find ways to move forward. The solution is growth, creating opportunities for all—especially for those most susceptible to the wrong path. Chicago is growing just fine from a CRE perspective, as is Baltimore. There is no community in America that isn’t scarred by crime to one degree or another. Crime is no excuse not to grow. It is the reason to grow.
Competition among cities is now a blood sport. And it’s only going to get worse, as most economists believe that the United States is on an indefinite slow-growth trajectory. When the pie gets smaller, people will fight for their slice rather than try to make the pie bigger for all. Albuquerque and northern New Mexico have one of the best combination of ingredients of any market I have ever visited. The upside potential is legitimately there. It also has the secret weapon of hope inspired by its landscape immortalized on the canvases of Georgia O’Keefe. Albuquerque and northern New Mexico are indeed breaking good.
By Spencer Levy, Americas Head of @CBREResearch | Senior Economic Advisor