Sunday, March 02, 2014

More Industrial Sites Needed for Future Jobs

As explained in a previous post, one of the region’s highest economic development priorities should be rebuilding our struggling manufacturing sector. But if a manufacturing firm wants to locate or expand in southwestern Pennsylvania, will it be able to find the land and buildings it needs?

Site location consultants report that it’s much more difficult to find industrial land and buildings in Pittsburgh than in other regions. The fourth quarter 2013 industrial market report from commercial real estate firm Newmark Grubb Knight Frank shows that Pittsburgh had less vacant industrial space available than 38 of the 49 regions they track. While the 9 million square feet of vacant space here may sound like a lot, other regions have 2 to 4 times as much space available, in many cases at lower costs than Pittsburgh. For example, Charlotte had 38 million sq. ft. of vacant space, and average rents for industrial space there were $3.51 per square foot, compared to $5.14 here.

Pittsburgh is even less competitive than these statistics imply because many of the vacant buildings here are very old and most firms won’t even consider them. Newmark Grubb Knight Frank reports that only 14% of the vacant industrial space in Pittsburgh is “Class A” space. The vacancy rate for Class A space is only 4.2%, compared to 9.1% for lower-quality space, confirming the greater desirability of the space that’s in shortest supply. Although a number of new industrial properties were being developed in Pittsburgh at the end of last year, most other regions had an even larger amount of new space under development, so our poor ranking isn’t likely to change soon.

It’s harder to develop new industrial buildings here because there are far fewer ready-to-go industrial sites and industrial parks in Pittsburgh than in other regions. There are two major reasons for this:

Problem #1: Limited Flat Land. The scenic beauty of our hills and rivers is great for tourism but it has the unfortunate side effect of making Pittsburgh one of the most difficult and expensive regions in the country in which to develop the large flat sites that manufacturing plants and distribution facilities need. Nearly 70% of the land in Southwestern Pennsylvania has a slope greater than 8%, whereas in Columbus, for example, less than 200 miles to the west, less than 20% of the land is that steep. Turning land with steep slopes into industrial sites can cost twice as much or more than land that is flat to begin with.

With a limited supply of flat land, it’s not surprising that most flat sites in our region have already been used for something. Although reusing vacant industrial sites for new businesses is a desirable goal, those sites are generally also very expensive to develop because existing facilities have to be demolished, any environmental contamination has to be cleaned up, and the infrastructure has to be modernized.

As a result, it’s almost impossible to develop industrial sites here without significant government subsidy to offset the extra costs of the land preparation and infrastructure.

Problem #2: Governmental Fragmentation. Southwestern Pennsylvania is carved up into 548 cities, boroughs, and townships, more than almost any other region in the country. Because they are so small, most of our municipalities and many of our counties don’t have the financial resources needed to offset the higher costs of developing large industrial sites. Moreover, because a large part of an industrial park needs to be vacant so that sites are available when firms or developers need them, an industrial park will contribute much less property tax revenue to its host municipality than if the property were developed and filled with housing or retail stores. As a result, small municipalities may be reluctant to host an industrial park without a way to offset their tax losses.

These are not new problems for Pittsburgh. Over a half century ago, the Regional Industrial Development Corporation (RIDC) was formed because regional leaders realized there weren’t enough modern industrial sites to support new business growth and no municipality could address the problem alone. Today, six of the ten largest business parks in the region and many of the region’s jobs are here thanks to the efforts of RIDC starting in the 1960s and 1970s. Similarly impressive work was done by the Westmoreland County Industrial Development Corporation and other county development agencies.

In the mid-1990s, a shortage of sites developed again, and a number of manufacturing businesses that wanted to locate here were turned away because there was no suitable space anywhere in the region. To address this, the Southwestern Pennsylvania Growth Alliance - a public-private partnership of elected officials and business executives from all 10 counties - worked together to assemble the first-ever regional priority list of industrial site projects. The state responded by providing nearly $40 million in grants for industrial site projects in all 10 counties. Many of the manufacturing and technology businesses providing jobs here today are located on industrial sites developed over the past two decades using funding obtained through that effort. Unfortunately, the Growth Alliance was disbanded nearly a decade ago.

It takes years to develop new industrial sites and buildings, so regional leaders need to take steps today to address the shortage of sites and buildings in the region before it gets even worse. No municipality or county can address this alone, because different businesses will need different types of sites, and because the jobs at each site will be filled by the residents of municipalities and counties throughout the region. Unfortunately, we have no regional financing mechanism for economic development infrastructure, and one needs to be created.

Help from state government is essential, not only because of the magnitude of the investment required, but because the majority of the tax revenues paid by the businesses and employees on the sites will go to the state, not to local governments. However, the region shouldn’t have to fight to get its fair share of funds from the state’s discretionary grant programs for economic development. The General Assembly and Governor should delegate decision-making authority to our region for a large portion of state economic development and infrastructure funding if the region creates an effective mechanism for infrastructure planning, decision-making, and financing.

An aggressive program for investing in industrial sites and other infrastructure should be a priority for both state and regional leaders. It will create jobs in construction, manufacturing, and other industries and help get our sluggish economy back on track.

(A version of this post appeared as the Regional Insights column in the Sunday, March 2, 2014 edition of the Pittsburgh Post-Gazette.)


Blogger Adrian B. said...

I got to the site looking for Pittsburgh problem, but reading the article I have 2 questions to clarify something that nobody seems to answer and everyone seems to intentionally ignore:
1. You say industrial sites are needed to grow industry. But you ignore, by intention or by mistake, that whatever industry you want to grow will not have any chance to compete. There are billions of Chinese, Indians and others that can produce the industrial goods cheaper just because there are billions of people that accept much less of a payment for their work. As long as this huge difference does exist there is no chance to build industry in US. Services is the only part of economy still working because a Chinese waiter in Shanghai cannot get your order and deliver your food in a restaurant in Pittsburgh, so there is no competition. Everywhere else if there is competition USA is losing because of huge comparative costs. So why do you want industrial sites and how do you think it can be competitive? Positive thinking does not bring customers for expensive products.
2. You are talking about taxes to local authorities in a way that makes me think the city owns the inhabitants and the inhabitants are tax contributors as the cows in a farm. The city is a way to organize people to share some costs for utilities and to provide essential services that the individual cannot get alone or cannot be left to the control of a person (like police and fire department), not to collect money from citizens to be spent sometimes discretionary by mayors and others; especially not to grow a big corps of city employees with big benefits while the paying citizens are having a declining life (see Detroit). Why cannot you go back to a city that is providing the universal essential services for the smallest cost to the citizen possible? And why cannot you get a city that is providing these services on a flat fee system like cable and gas, not based on revenue of the citizens? Higher revenue does not mean higher consumption and "earn more pay more" is a way to discourage earning more or living in that city. See France where high taxes levels raised by socialists made people cross the border in Belgium and screw the French state, the only one who lost was the French state (and the citizens).

6:48 AM  

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