The Northeast is one of the world’s great economic regions. The region’s GDP is climbing. And a trend is emerging – corporations moving from the suburbs back to the city. Will this trend be a generational change or challenge?
Wealth & Power. The Northeast is one of the world’s great economic regions. Running from Maine to Maryland, the Northeast United States corridor represents roughly 20% of the nation’s GDP. Add in Eastern Canada and the Port of Montreal and the size, strategic location and economic importance of the North American Northeast is further enhanced.
At night from the air, the lights from the cities in the Northeast seemingly blend together in a long shimmering chain from Boston to Baltimore. The coastal river of lights reflects the density and non-stop activity of the region.
The region stretches roughly 800-miles, north and south, which pins most of the economic activity to metro regions along the Atlantic coast.
Broken into key metro regions, the economic power of the Northeast comes into focus. The greater New York city region, which spreads over three states, has an estimated GDP of $1.5 trillion. The greater Boston area has an estimated GDP of $382 billion while Philadelphia is ranked with $381 billion. The greater Washington DC (District of Columbia) region (which includes Baltimore) checks in with a GDP of $391 billion. Any one of these metro regions has the economic mass of a medium sized nation. Collectively the region is on an economic par with Japan – an economic superpower.
Competitively, the New York/New Jersey region is the greatest draw – often considered the financial center of North America - but nearly all the metro regions compete for the attention of businesses regionally, nationally and internationally. And it’s not just economics. Washington DC is the center of the political life of the nation. When something happens inside the Beltway – as it does so regularly these days – the impact ripples outward like waves from a stone dropped in a pond. It is this combination of economic “wealth” and political power that so uniquely defines the Northeast region.
New England and the Northeast
New England is a bit of an outlier from the rest of the Northeast. And the difference begins with geography. When you take the AMTRAK’s Acela train from Boston’s South Station to Union Station in Washington DC, the train immediately heads south to Providence before turning west and going through Rhode Island and the length of Connecticut before entering New York State, with a short run to New York City. During much of the trip through Connecticut, Long Island Sound is in clear view. This is an integral part of the New England framework – the Atlantic [Long Island Sound] to the South, the Atlantic to the East, and to the North, Canada starting with the Maritimes and running into Quebec and Montreal.
In transportation terms, the New England region is farther East from the Midwest than the rest of the corridor. Ports like New York/New Jersey, Norfolk, Virginia; Philadelphia, Pennsylvania and Baltimore, Maryland have a natural advantage. In addition, the Port of Montreal on the St Lawrence River is also closer to the Midwest. Boston is 982-miles to Chicago while New York is 789-miles. Baltimore is 700-miles away from the Windy City and Philadelphia only a half a hundred more.
In the competition as gateway for trade to the US hinterland, New England (and particularly the Port of Boston) starts with a geographic disadvantage when compared to the rest of the Northeast corridor. But New England is really a region unto itself.
The “greater” New England economic area which includes parts of Upstate New York and Canada (and excludes parts of Connecticut that falls within the New York City economic orbit) represents a sizeable, independent economic entity within the Northeast – an economy approximately on the scale of the Netherlands.
Historically, New England’s calling card was manufacturing but this disappeared decades ago. The old economy has been displaced by a robust new one which features financial services, healthcare, hi-tech industries, defense, education, hospitality services and construction. With the exception of the Great Recession of 2008-2009 (see charts above), the economy of New England has continued to climb – reflected in both steady increases in GDP and annual wages.
This is especially true in Massachusetts and in the metro Boston area - arguably the economic and cultural “Hub” of the region. According to a report from MassBenchmarks (a collaboration between Northeastern University and the Federal Reserve Bank of Boston), Massachusetts’ employment has been growing faster than the national average. In the fourth quarter of 2017, employment in the State grew at a 2% rate versus 1.4% for the U.S. Third-quarter job growth was 2.1% in Massachusetts versus 1.3% for the U.S. For the year—the fourth quarter of 2016 through the fourth quarter of 2017—employment in the state grew 1.8% versus 1.4% for the U.S. Alan Clayton-Matthews, MassBenchmarks senior contributing editor and associate professor of economics and public policy at Northeastern University, further refined the employment numbers noting, “The broader U-6 measure of unemployment - which includes those working part-time but want full-time work, as well as those who are marginally attached to the labor force - is back to pre-recession levels for both the state and the nation, 7.0% for Massachusetts and 8.1% for the U.S.”
Inside the “Hub”
The City of Boston is often referred to as “The Hub,” which is short-hand for the more expansive moniker “The Hub of the Solar System.” When Oliver Wendell Holmes coined the phrase in 1858, he was referring to the golden domed Massachusetts State House on Boston’s Beacon Hill. The nickname stuck and while Boston may or may not be the Hub of the Solar System… or Universe, the economic mass has attracted a sizeable amount of interest among Fortune 500 companies.
The City is relatively small at 89.6 sq./mi with only 48.4 sq/mi of that total being land. By comparison, the cities of New York at 469 sq/mi and Chicago 234 sq/mi. represent much larger metro regions. The estimated 2017 population of Boston proper is also relatively small compared to other metros with the 21 official neighborhoods combining for a population tally of 687,584. But the small city really is the Hub of a region of 7.6 million residents. And Boston is a great deal more than permanent city-dwellers. Every year 350,000 plus undergrads take up residence accounting for $4.8 billion boost in local economic activity. From a metropolitan GDP perspective, Boston is the 6th largest in the U.S. and 12th largest in the world. And it is the region’s largest seaport, airport and capital of the State. In short, it is an economic catalyst with impacts ranging far outward from its modest boundaries.
In recent years, finding property inside the HUB for ‘headquarters’ style real estate development has spurred a gold rush of corporate re-locations. In 2014 drug manufacturer Vertex Pharmaceuticals opened a new 1.1 million-square-foot headquarters complex in the Hub. But perhaps the biggest coup for both the City and State was the decision by GE to re-locate its global headquarters to Boston from the Fairfield, Connecticut location. It took approximately a $145 million package from the State and City to lure GE to the Hub. The new GE HQ dubbed “Innovation Point” is to be a $200 million project on a 2.7-acre site on Fort Point Channel. Under the initial timetable, the 400,000 sq/ft campus would have been completed by mid-2019 but GE recently announced a project slowdown. Still the impetus behind the move to Boston was clear – GE wanted to project an image of being more like a Silicon Valley company – more like Apple or Amazon and less like US Steel – and Boston with a deep pool of knowledge-based workers and access to top notch research facilities met the criteria. Another company, Alexion Pharmaceuticals also decided to relocate its corporate headquarters from Connecticut to Boston. The company moved into a 150,000 sq/ft office in the recently completed 121 Seaport Boulevard.
None of this is exclusive to Boston. For example, Under Armour is building a nearly 4 million sq/ft campus in Baltimore. But the scale of the corporate exodus from the burbs to the City of Boston is astonishing. The trend is exemplified by Reebok’s re-location to the 220,000 sq/ft office space at the Innovation and Design Building. The athletic shoe and apparel giant, moved from its spacious Canton campus – about 20-miles away - into the 5 Drydock Ave. facility last year along with 750 employees. Because the City is more than a workplace, the Reebok facility has a 30,000 sq/ft gym and 13,430 sq ft retail store. Another company following suit of moving inside city-limits is audio giant Bose. Bose will relocate a large portion of its workforce from Framingham into nearly 100,000 sq/ft at Boston Landing, which is also the global headquarters of another athletic shoe and apparel company, New Balance
For many cities in the Northeast corridor, the elephant-in-the-room question is where will Amazon place HQ2? While the Boston area might be in the running for Amazon HQ2 – rumors seem to place the new HQ2 closer to Washington DC. Amazon at this writing is negotiating to lease 430,000 sq/ft of Boston office space on floors 3-17 at Seaport Square Block L4, which would house 2,000 employees.
The Amazon move to the waterfront is significant on a number of levels. On one hand, the Amazon move represents a continuation of the urbanization that’s accompanied the rise of e-commerce. The idea of moving retail commodities within the urban environment – part of last mile strategies - is realigning supply chains around the globe. But the Amazon move, along with many other corporate re-locations, reinforces the importance and fragility of access to transportation assets such as Conley Terminal and Logan. The rush to secure waterfront properties – and associate price rises - underscores the real estate pressure on waterfront (and to a lesser extent airport) dependent properties.
Such pressures on key waterfront assets isn’t unique to Boston. It is a familiar refrain from Maine to Maryland. Finding a way to balance the pressure for waterfront space against the needs of waterfront dependent industries could well be the key to continued prosperity in Boston and the Northeast.