Urbanization ushers in upstart industries, innovative ideas
Flying from Los Angeles to Washington, D.C. on a clear day, one cannot help but look down at miles of open land spotted with small towns and wonder, “With all that space, who’s down there?”
In 2009, for the first time in world history, the number of people living in urban areas surpassed the number living in rural areas. More recently, U.S. urban population growth began outpacing suburban growth for the first time since World War II.
This trend should continue for the foreseeable future, with the world urban population, by one estimate, expected to increase 84 percent by 2050. Cities are one of the most important inventions in human history.
Urbanization has its own Moore’s Law — every time a city doubles in size, the productivity of its population increases by 15 percent. As cities get bigger, everything starts accelerating.
Cities are also more environmentally friendly. The suburbs may look greener, but a person living in New York City produces 14,000 fewer pounds of carbon dioxide a year than someone living in a suburb.
What do these trends mean for current and future urbanites? How is it playing out in and around Washington? And, how are companies responding?
Washington, D.C. is a unique urban area because building height limitations, enacted at the turn of the 20th century, restrict city density. As a result, areas around Washington are becoming edge cities and, in some cases, true urban downtowns.
Arlington, Virginia has more office space than downtown Dallas. Tysons Corner, Virginia is transforming from a network of suburban business parks with 167,000 parking spaces into a workable, livable community that will have 100,000 residents and some 200,000 jobs by 2050.
In essence, the D.C. metro area is becoming a collection of urban villages. Urbanization is a uniquely powerful economic theme that can spark many different investment ideas.
Watching the construction of cities from scratch in China over a decade ago led me to the observation that living was becoming denser, more vertical and less horizontal.
What is a fundamental piece of infrastructure needed for increased vertical living? Elevators. In 2011 alone, over 350,000 elevators and escalators were installed in China.
Looking skyward was a good idea, but looking down was not bad either. The same European company that provided the majority of elevators in China was chosen to manufacture new escalators for the Washington Metro system.
The migration of people into urban centers is not only changing infrastructure needs, it also greatly impacts consumer spending habits. People in cities spend 40 percent more on food prepared outside the home than non-city residents because they have more high-quality, cost-effective options.
Urban concentrations of diners and restaurants, in combination with new technologies, have expanded the concept of outsourced food preparation.
Online and mobile food ordering is one of the fastest growing business segments in the U.S. This two-sided market dynamic produces a “network effect” where more diners enhance the value proposition for restaurants, while more participating restaurants enhance the value proposition for diners.
The ability for a consumer to order a restaurant meal from anywhere, have it delivered anywhere, and for a restaurant to leverage its core competency without the cost of additional tables, staff, or linens, is a good example of increased urban productivity.
Innovations in the transportation sector, beyond better public transportation, are changing urban mobility.
Services like Uber and Lyft are creating new business models, changing old ones, and extending the luxury and convenience of car services to geographic areas where taxis are sparse.
Notably, in 2014, Uber accounted for 60 percent of car service trips expensed by U.S. Congress members. Four years earlier, the percentage was virtually zero.
Bike sharing is showing similar growth as a transportation alternative. By the end of 2015, Washington, D.C.’s Capital Bikeshare had grown to over 350 stations and one million rides per quarter. Although bicycles are old school, it is technology that is enabling new cost-effective transportation alternatives.
The transformation of transportation is not limited to transporting people.
While attention is focused on Amazon’s experiments with drone deliveries, the expansion of same-day delivery in the Washington, D.C. market has extended out to peripheral towns and cities, with the promise of same hour delivery right around the corner.
Re-urbanization in the U.S. has been driven largely by baby boomers and millennials. A recent article in The New York Times posited that we may have reached “peak millennial” and, as these young professionals start to raise families, they will migrate to the suburbs.
This may be a trend, but the bigger trend will be the urbanization of suburbia. Uber, Capital Bikeshare, e-commerce retailers and consumer spending patterns incubated in cities will be transported from urban cores to urban fringes.
The lifestyle, amenities and preferences of urbanites and suburbanites will start to converge. This is a growing idea with new growth opportunities.
Spencer Smith is director of research at Chevy Chase Trust, an investment think tank and wealth management firm based in Bethesda Maryland.
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