Aug 6, 2020

Axios Cities

Congrats, you've almost made it through another week.

  • Today's edition is very tech-centric, taking a look at e-commerce's impact, high-tech workers, e-scooters and WiFi hotspots.
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  • Our tech tour clocks in at 2,042 words, an 8-minute read.

In case you're looking for something to do today: Join me at 12:30pm ET for a conversation on ethical technology and the role of tech companies in the coronavirus response with former U.S. chief data scientist DJ Patil and Human Rights Watch executive director Kenneth Roth.

1 big thing: The next wave to hit Main Street

Illustration: Eniola Odetunde/Axios

Call it the great retail wash. A wave of defaults, bankruptcies and evictions expected in cities across the U.S. is poised to remake the retail landscape across the country, but there may be some upside for consumers and small businesses, my colleague Dion Rabouin and I report.

  • Why it matters: Rather than an overnight descent into a collection of urban wastelands full of Starbucks, Amazon fulfillment centers, Chase bank branches and nothing else, the coronavirus pandemic and resulting retail apocalypse may mean that, in major U.S. cities, less is more.

What it means: The world after the COVID-19 apocalypse will likely include fewer malls and the end of some American business mainstays. But experts also expect it to bring lower rents, cleaner buildings and the opportunity for companies that have invested in quality to outperform.

What we're hearing: "I do think there is going to be less need for retail in particular as we get more familiar and comfortable with online consumption," said Brett Theodos, senior fellow at the Urban Institute.

  • "That doesn't mean it's going away — there's still an experiential element to it — but there will be a decreasing need for brick-and-mortar establishments than there was before the pandemic," he said.
  • "That's going to play out on Main Street as well as the big corporates."

"In New York, retail prices have gotten very high and we think there is room for an adjustment, which we hope will open up opportunities for new small businesses, digital brands looking to break into brick-and-mortar, and new experiential concepts," Jake Elghanayan, principal and senior vice president at TF Cornerstone, tells Axios.

Many cities already have far too big of a retail footprint per capita, said Sara Doelger, principal at Argosy Real Estate Partners in Wayne, Pennsylvania, and chair of the Urban Land Institute’s Commercial and Retail Development Council.

  • "There will always be a need for brick-and-mortar because that's how humans work. Will there be less of a need for it? Yes," Doelger said.
  • The immediate impact will increase building vacancies and put downward pressure on rents. "This may give tenants more power in lease negotiations," she said.

As stores close, at least some square footage will likely be repurposed for industrial uses, e-commerce last-mile facilities (think Amazon logistics centers) or self-storage companies.

  • Vacant retail sites are already being converted to e-commerce warehouses and fulfillment centers, per commercial real estate giant CBRE — and the pandemic is accelerating that trend.

Between the lines: Space also is expected to open up in urban houses and apartments as more people move from big urban city centers to suburban settings and smaller, less expensive cities, Lawrence Yun, chief economist at the National Association of Realtors, tells Axios.

Urban buildings will change. More housing could also open up as big box stores and strip malls inhabited by national retailers are razed and rezoned for community use.

  • And new or renovated buildings could upgrade ventilation systems to both save energy and sweep germs away.

"The big question for cities is how many establishments are there, and how much space do those establishments need?" Theodos said. "There's a big hit on both."

The last word: There have been a lot of headlines about struggling businesses, but so far there have been few defaults or outright company closures, notes Alan Todd, U.S. head of commercial mortgage-backed securities research at Bank of America.

  • "Everybody wants to see how this is going to shake out, but it takes a long time."
  • "There are a lot of ways that lenders and borrowers can work together to alleviate pressure points, and there’s a very long fuse on some of this stuff that takes a while to shake out, and that’s what people need to think about."
2. Exclusive: How the high-tech economy is expanding
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Data: Information Technology Industry Council; Map: Andrew Witherspoon/Axios

The technology sector increasingly underpins the U.S. economy, with signs of its growth becoming more woven into local economies far outside iconic innovation hubs like Silicon Valley and New York.

Why it matters: A new district-by-district report out today from the Information Technology Industry Council makes the case that an economy infused with high-tech workers, startups and exports is a more resilient one, with higher wages and productivity.

What's new: Drilling into the data by congressional district yields some surprising findings:

  • The average congressional district now has about 400 high-tech startups employing around 3,400 workers.
  • Texas and Florida are home to four times the number of high-tech startups as the average U.S. state.
  • In Alabama, startups make up 16% of high-tech employment — the highest share in the country.
  • In Vermont, high-tech manufacturing exports make up 5.5% of the state economy — the largest share in the country.

"There is demand for skilled STEM workers, there is demand for public R&D funding, and even for high-tech startups in states across the country — not just in states we hear so much about," said ITI President and CEO Jason Oxman. "Companies are looking for opportunities to find good people in new geographies."

Yes, but: Despite shoots of green sprouting up across the country, many districts are still struggling to find a solid foothold. And there's concern that the COVID-19 pandemic will stunt some areas' tech-related growth even more.

  • For example, the Heartland region lags far behind coastal markets when it comes to attracting entrepreneurs and startups, according to a May report from Heartland Forward.
  • This is where skilled workers are key: "Knowledge-intensive young firms have a higher probability of achieving middle-market status where they can generate rapid job gains for their communities," per Heartland Forward.

The ITI data shows a strong correlation at the district level between employment in computer and math occupations and employment in science and engineering occupations — indicating that a density of high-skilled labor makes a region more attractive for skilled workers in other sectors.

  • This can have a direct impact on wages.
  • In the median congressional district, average annual wages for high-tech workers in the median state were nearly $79,000. That's more than double the median U.S. personal income, which is around $31,000 annually.

The bottom line: The tech economy isn't a one-size-fits-all proposition. Smaller markets have managed to capture pieces of the innovation infrastructure needed to drive high-tech ecosystems, but many have a long way to go.

  • "It is really important for states and congressional districts to focus on what they're good at and not try to be the next San Francisco," Oxman said.

Share this interactive graphic.

3. ...but R&D investment is uneven
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Data: Information Technology Industry Council; Map: Andrew Witherspoon/Axios

There's a clear correlation at the congressional district level between the prevalence of high-tech and STEM workers and federal R&D funding, ITI's data analysis found.

  • The catch: The decades-long slide in public R&D funding has accelerated since 2009, according to the Information Technology & Innovation Foundation, which analyzed the numbers last year.

By the numbers: In the last two fiscal years, 250 out of 435 congressional districts got at least $50 million in federal R&D funding.

  • 14 states did not get any public R&D funding.
4. The next tech hot spots
Data: Reproduced from CBRE Scoring Tech Talent report Chart: Axios Visuals

Unsurprisingly, San Francisco, Washington, D.C., Seattle, Toronto and New York rank highest in CBRE's annual ranking of the top 50 tech-talent markets in North America.

  • More interesting are the up-and-coming markets outside the top 50 list that have expanded their appeal to high-tech workers.

Why it matters: Tech talent is what most industries and companies today require to operate.

  • The 5.4 million people in the "tech talent" profession make up only 3.5% of the overall U.S. workforce, "but it drives a lot of what's going on in our country," said Colin Yasukochi, executive director of CBRE's Tech Insights Center.

What they did: CBRE compared real estate costs and wages across markets to find the most affordable and the best bargains for cost vs. labor quality.

What they found: The San Francisco Bay Area is the most expensive market for a 500-person tech company leasing 75,000 square feet at $62 million a year.

  • Montreal clocked in as the least expensive in the top 50, at $29.6 million.
  • Of note: Canadian markets come with a U.S. dollar conversion discount.

Between the lines: Smaller cities could get a boost from remote workers leaving the big, expensive cities as many Big Tech companies have announced long-term remote work plans.

  • "I think there's going to be a play for rural creative class centers," said CBRE's Dan Harvey in a July 24 podcast on the report, which is worth a listen. "It's going to be a grand experiment."
5. Mayors to Trump: Cities need aid now

A group of 290 mayors sent a letter to President Trump on Wednesday reiterating their request for $250 billion in direct aid to cities of all sizes.

The big picture: Negotiations over a stimulus package have stalled in Congress.

  • City leaders have been pleading with Congress and the administration for months for direct financial assistance to help offset severe pandemic-induced budget shortfalls.
  • The CARES Act set aside $150 billion for local governments, but it was only available to cities with populations of 500,000 — which meant only 38 cities qualified. And that money wasn't eligible to use toward budget shortfalls.

From the letter:

"It is also important to appreciate that these budget shortfalls are not a blue state or a red state challenge. The virus knows no geographic boundaries or party affiliation, and there are budget crises in every state and in cities big and small.
All of us want to rebound from this pandemic as quickly as possible. But we cannot have a strong recovery without strong cities. We know from past crises that a failure to support cities will drag on the nation’s economic growth."

The National League of Cities followed up on the plea this morning, noting that more than 1.5 more local government jobs have been lost during the pandemic with more job losses expected.

“If lawmakers don’t quickly pass another sizable rescue package that includes help to state and local governments and more income support to the unemployed, then the economy will suffer another downturn — a so-called double-dip."
— Mark Zandi, chief economist at Moody’s Analytics, told Bloomberg last week
6. Scooter maker Unagi bets people want to rent rather than share

Photo: Courtesy of Unagi

E-scooter company Unagi on Wednesday debuted a personal scooter subscription service in Los Angeles and New York that allows people to lease their own scooter rather than take their chances with a shared one on the sidewalk.

Why it matters: In the COVID-19 era, people are wary of mass transit and shared vehicles, instead opting for personal cars, bikes and scooters that are seen as safer.

Unagi CEO David Hyman says the company — which sells scooters that retail around $1,000 — saw a surge of orders at the beginning of the pandemic. But not everyone can afford that price point or wants the commitment of a large purchase, he told Axios.

  • "We're seeing a seismic shift to personal transit," he said. "Many people now prefer access over ownership."
  • Consumers can lease a scooter for $39 a month, which includes maintenance and insurance.

Context: Unagi isn't the first to test e-scooter rentals. Bird, Spin and Bolt have also rolled out limited personal rental options.

  • The difference, Hyman said, is Unagi's sleek form factor and lighter weight, making it more attractive to bring into a customer's home or carry up to a fourth-floor walk-up apartment.
  • Shared e-scooter varieties are built to be bulky and heavy to withstand a hard life on the street.

Yes, but: Auto subscription services have failed to take off, likely due to the high price points.

What we're watching: The extent that people opt for personal vehicles will have lasting implications for public transit, car use and traffic.

Go deeper:

7. Urban files
Data: The Conversation; Chart: Axios Visuals

Low-income households are struggling to pay energy bills during the pandemic (Axios)

🎧 "Axios Re:Cap" podcast digs into the eviction crisis with Alieza Durana of the Eviction Lab at Princeton University (Axios)

How accessibility reshaped cities (Bloomberg CityLab)

Party houses defying COVID-19 orders may have utilities shut off, mayor says (LA Times)

The Midwest: A region with outsized punch (Economist)

8. 1 WiFi thing: San Jose gets 11,000 hotspots for students

Illustration: Eniola Odetunde/Axios

San Jose Mayor Sam Liccardo on Monday announced a deal with AT&T to make 11,000 4G hotspots available to keep students and families connected when schools begin virtually this fall.

Details: As part of the COVID-19 Digital Inclusion Expenditure Plan, an $8.2 million program unanimously approved by the city council, the city is working with AT&T to focus hotspot lending on K-12 students.

  • San Jose is contributing $3.4 million to the plan, and AT&T is contributing $6 million of in-kind services to provide the hotspots.
  • 8,000 WiFi hotspots will be available to public school students to keep for the school year, and 3,000 hotspot devices will be available to the public to check out at local libraries.
  • Community WiFi will be available within the East Side Union High School District boundaries.
  • Outdoor WiFi will be expanded at libraries, community centers and parks.

What we're watching: AT&T's Rhonda Johnson said on a press call that the company is interested in replicating the public-private arrangement with other cities.

Go deeper: Schools confront broadband access crisis