Future Cities

Highly-skilled but Low-cost Cities Will See The Greatest Growth

June 15, 2021 6 Minute

By Matt Mowell

Business district in downtown area
Although the U.S. economy has regained nearly 70% of the jobs lost during the pandemic, conditions may be much better or worse depending upon where you are located. Consider Figure I, which illustrates how far employment fell during the pandemic and its current standing (as of April 2021) relative to pre-pandemic levels. The cities hardest hit by COVID-19 tend to be economically dependent upon leisure travel, with Las Vegas, Orlando, and New Orleans prominently displayed in this category. But very large, industrially diversified cities, such as New York, San Francisco, and Boston, also have considerable labor market slack. These cities have sizable hospitality sectors that serve both business and leisure travelers but also implemented stricter lockdowns that stymied the pace of recovery in recent quarters. Conversely, cities that took a laissez-faire approach to social distancing are now seeing tighter labor markets, with many likely to recovery before year-end.

Figure 1:


As the effects of the pandemic fade, future job growth will be driven by traditional factors, namely the growth outlook for the local industry mix and labor force growth. We anticipate high-tech sectors, ranging from R&D, tech services, and advanced manufacturing, will continue to be key drivers of economic growth. These sectors support higher wages and have a greater multiplier effect throughout the local economy. 

Traditionally, cities that were leaders in high-tech production tended to be expensive by U.S. standards (e.g. San Jose, Boston, Seattle). Increasingly, this high-cost structure has inhibited recruitment from outside the region and placed significant strain on lower-margin industries. This is evidenced by many non-tech corporate offices in the San Francisco Bay Area leaving for lower-cost locales. Thus, an emergent trend in the American economic geography is the interplay between labor force skills, industry mix, and affordability.

Figure II maps out these factors by showing the relationship between for-sale housing affordability and the concentration of high-tech occupations in the metro. The northeast quadrant contains the traditional centers of technical talent. To be sure, the cities in this quadrant also saw noticeable job growth during 2014-19, at 2.4% annually, but the point is their growth potential was curtailed by a very high-cost structure and barriers-to-entry.

Figure II:


Consequently, technical industries are migrating from high-cost cities to a small group of cities that uniquely offer both a technically adept labor force and relative affordability. These cities are illustrated in the southeast quadrant and have a notable share of STEM occupations, but the house price-to-income ratio is below the metro average. Austin, Raleigh-Durham, and Colorado’s Front Range fall within this grouping (highlighted in blue shading), wherein job growth averaged 2.6% per annum from 2014-19. This is noticeably greater than other low-cost metros with less exposure to the highly productive tech sector (clustered in the southwest quadrant), where job growth averaged just 1.8% respectively. The upshot is cities that offer both a skilled labor force and relative affordability will have a comparative advantage in the future.

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    EA is CBRE’s forecasting Research group, comprised of professional economists, data scientists and analytical experts. The group uses proprietary data to determine the most influential economic factors affecting commercial real estate trends now and in the years to come to arm clients with the best available insights for making intelligent investment decisions.