STREETCAR & DEVELOPMENT ORIENTED TRANSIT

For more than a decade, EDH has been at the forefront of empirical research in documenting the development experience associated with re-introduction of streetcar systems into a re-urbanized America. In this post, I summarize what has been learned from the longest-running experience to date with a new, fully modern streetcar system - in Portland, Oregon.

The Portland Streetcar Experience

In 2001, Portland opened a new Central City streetcar line extending through the city’s Downtown area (west of the Willamette River). In addition to serving the Downtown and adjoining Pearl District, subsequent extensions have since been made to Portland’s established Northwest District and to the rapidly redevelopment South Waterfront District. The initial Central City line represented the start of the first modern streetcar system built in America.

The Big Burst

In-depth research of the post-streetcar investment and development experience in Portland was conducted in 2005 by E. D. Hovee & Company, LLC.  This retrospective look documented the role streetcar investment has played as a catalyst both to re-orient where development occurs and to facilitate a more urban (or higher density) scale of development

Pace & Location of New Development. As depicted by the following graph, after a streetcar funding plan was put in place in 1997 (with construction subsequently starting in 1999 and opening in 2001), development in proximity to the alignment took off. From 1997-2004, properties situated within one block of streetcar captured 55% of all new development within neighborhoods through which the streetcar line passed.

Pre-streetcar (or prior to the 1997 funding commitment), these same blocks represented less than 20% of the total building inventory in the Downtown/Pearl District area. Taken together, properties situated within three blocks of the Portland Streetcar went from 47% of area development pre-1997 to 75% of post-1997 development with streetcar.

Intensity of Development. There also has been a relationship demonstrated between the density of post-streetcar development and proximity to the streetcar line – with much greater levels of density in development taking place near the line. As shown by this next graph (below), within one block of the streetcar line, post-streetcar development has achieved nearly 90% of the floor area ratios (FARs) the zoning allowed. 

The ratio of development actually experienced in relation to zoned development capacity steadily declines as distance from streetcar increased – to only 43% of allowed FAR for new development situated more than three blocks from streetcar.

Added Notes. Along with streetcar, key factors affecting the location, pace and scale of recent Central City residential, office, retail and mixed-use projects have included public-private development agreements with major property owners and consolidated land ownerships – both of which accompanied the first wave of development activity along the alignment. Also noted was that sites within one block of streetcar experienced a 5.8% rate of average annual increase to the existing building stock (over an 8-year period) with new construction versus a 1.0% annual rate of increase at a distance of more than three blocks from the streetcar alignment.

Updated Experience

Supplemental analysis indicates that transit oriented development (TOD) related to streetcar in Portland is still continuing at a rapid pace, despite the temporary slowdown of investment realized during the Great Recession. Looking over a more extended 16-year period from 1997-2012, the overall pace of development (on the 1997 base) has continued at about the same rate as early-on.

A greater share of new development has shifted to the 2- and 3-block distance in recent years, though projects within a 1-block (200 foot) distance of streetcar still continue to account for the greatest share of development. Development densities also have continued to increase in relation to zoned maximums, with particular gains noted at the 2-3 block distance.

Overall, from 1997-2012, assessed property values within 1-3 blocks of Portland’s streetcar alignment have increased by 330% as compared with a just over 130% increase in valuation across all properties citywide – reflecting an overall streetcar premium that is more than 2.5 times the citywide valuation growth rate. Building improvement valuation gains have been greatest for properties within 1 block of the alignment, with strong land valuation appreciation noted across the full 1-3 block impact area benefited by streetcar.

From TOD to Development Oriented Transit

The Portland experience suggests the value of turning the traditional TOD paradigm on its head. While it is increasingly clear that residential, employment and mixed use development will respond to transit investment, it has become even more apparent that the best transit investments are intentionally located, designed and operated to better facilitate property owner and development capacities. In effect, this public-private feedback loop shifts the emphasis from transit as the sole driver to a development-first paradigm - as the most opportune mechanism to maximize public and private return on investment (ROI). 

 

RETAIL PERFORMANCE - THE PORTLAND LOOK

Sometimes, the best of intentions can go awry. On behalf of a private sector initiated Retail Task Force (RTF), E. D. Hovee & Company, LLC has recently evaluated sub-city shopping patterns in Portland, Oregon. With this analysis, the RTF submitted testimony to City Council members expressing concern that current proposals for commercial areas of the city could render "access to affordable goods and services, including healthy food, more difficult.” 

To understand the rationale for these concerns, in-depth evaluation of current patterns of retail sales and commercial real estate rental space city-wide. Principal findings are that: 

  • Portland is already under-retailed – especially lacking in meeting the day-to-day needs of city residents as for grocery retail.  
  • Disparities are greatest for areas removed from the city core – to the east where commercial space rents are lowest and least adequate to support high costs of new development and to the west where viable retail sites are limited due to topography and proximity to retail in the neighboring suburban jurisdiction of Beaverton. 
  • City of Portland consideration of standards that may be workable in higher density areas with good transit service risk even greater shortfalls in retail availability for residents who already have the poorest access to quality, healthy and affordable retail services. 

Retail Sales & Leakage

Retail sales leakage occurs when sales volumes of retail stores are below what residential demand would support - meaning that in-city residents are traveling outside the city to shop. For this city of over 613,000 residents, an evaluation of 2015 retail sales patterns using nationally recognized Nielsen data showed that: 

  • City-wide retail demand and supply are roughly in balance - with relatively nominal levels of overall sales leakage experienced but with substantial sales leakage for grocery stores as anchors for vital neighborhood business districts.
  • Portland's vibrant Central City is experiencing retail sales levels nearly double what the purchasing power of Central City residents alone would support - not surprising given strong attraction of the downtown and Pearl districts to suburban residents and tourists.
  • Other Portland geographies are substantially under-retailed. Even trendy Inner Area neighborhood districts experience net sales leakage at about 38% of resident demand, including grocery leakage at 15%.
  • Socio-economically challenged Eastern areas (east of about the I-205 beltway) are indicated as having sales leakage approaching 50% of resident demand - with limited grocery options offset by extraordinarily high rates of purchases at less healthy convenience stores. 
  • The topographically challenged Western area with its hilly terrain experiences even higher rates of leakage, with many residents traveling by auto over the hill to the neighboring jurisdiction of Beaverton. 

A surprisingly high 18% of all in-city retail sales occurs at the northern edge of the city near industrial and airport areas - especially for large format stores that can not find appropriate sites closer to residential neighborhoods. 

City Action

In May 2016, the Portland City Council approved amendments as proposed jointly by RTF and planning staff to the updated Comprehensive Plan that better address the widest range of retail needs across the city with policies aimed to:

  • Provide for a competitive supply of retail sites that support the wide range of consumer needs for convenience, affordability, and diversity of goods and services, especially in under-served areas of Portland.
  • Provide adequate land supply to accommodate a full spectrum of grocery stores catering to all socioeconomic groups and providing groceries at all levels of affordability.
  • Consider short-term market conditions and how area development patterns will transition over time when creating new development regulations.

A final City Council vote on the Comprehensive Plan is scheduled for June 2016. As a related implementation activity, the City's Planning and Sustainability Commission is receiving testimony through July 12, 2016 on a Mixed Use Zones Project and zoning code amendments affecting current commercially zoned districts of the City - after which a public hearing will be held on a proposed composite zoning map. 

Pacific Northwest Economic Resurgence

In our last blog (of March 16), the focus was on changes in U.S. employment from when job counts during the Great Recession bottomed out in 2010 to the most recent Q3 2015 data on nationwide jobs and payrolls. With this second phase analysis, the scope narrows to the Pacific Northwest (PNW) states of Washington, Oregon and Idaho. 

Despite severe job losses thru the heart of the recession, the PNW has rebounded smartly in the last 4-5 years since 2010. Employment in the 3-state region has increased by 13%, well above the 9% job increase nationwide. Currently the PNW now has a based of 5.7 million jobs (covered by unemployment insurance), representing about 4% of the 140 million workers across the U.S. 

As with the U.S. analysis, these changes are depicted by the graph below which shows: 

  • Current PNW job base (measured in relative terms by the size of the circles in the graph)
  • Change in # of jobs in the last 4-5 years (horizontal axis)
  • Change in annual wages by job sector (vertical axis)

In several respects, the PNW graph closely mirrors national experience (see graph with earlier blog below). The same sectors that dominate the national landscape also tend to represent the greatest concentrations of employment in the Pacific Northwest. The #1 sector for net job growth nationally and regionally post-recession has been with professional and business services. While a large sector, government represents the only sector of the economy for which net job loss is indicated post-2010. And overall, wages have increased at about the same pace averaging 1.7% per year across both the U.S. and PNW. 

However, clear differences are of note as well:

  • While manufacturing employment has picked up across the U.S., the rate of PNW job growth has been twice that of the nation. Similar outsized performance is noted for the smaller job sectors of natural resources (including agriculture) and information.
  • Average size of PNW firms is increasing more than three times as fast as for the U.S. (not directly shown by the graph).
  • And, most astoundingly, the information sector (ranging from publishing to software) is associated with a nearly $77,000 per year average increase in compensation per year - well above the still remarkable $18,000 per year gain experienced over the last 4-5 years nationwide. State and federal employment data indicates that PNW payroll per information now averages almost $172,000 per year - largely driven by outsize compensation for high performers, particularly in the Seattle metro area. 

Looking ahead, obvious questions relate to sustainability of information sector payrolls as well as to continued resurgence of manufacturing and national resources employment (benefiting rural and smaller metro areas of the PNW recently). Other sectors of importance to continued balanced regional job growth will be construction, professional and business services, education and health, leisure and hospitality, and trade transportation and utilities (TTU) - together with stabilizing government sector employment. 

Post-Recession Winners & Losers - Nationwide

Early Returns Are In ...

With the Great Recession officially ended in 2009, U. S. employment actually bottomed out in 2010 at less than 198 million jobs. by the 3rd quarter of 2015, employment covered by unemployment insurance had worked its way up to nearly 140 million jobs, a 9% gain of 11-12 million jobs nationwide. 

In this first blog, I look at the mix of the changing U.S. job base. In future blogs, the focus will shift to economic and development trends in varied regions of the U.S. - starting with my backyard of the Pacific Northwest. 

As depicted by the graph below, this review of national experience since 2010 focuses on: 

  • Current job base (shown by circles) 
  • Change in # of jobs in the last 4-5 years (horizontal axis)
  • Change in annual wages by job sector (vertical axis)

This overview offers some mixed and perhaps surprising messages about the rapidly changing mix of the U.S. job base.

A few observations to help put all this in perspective:

  • Of nearly 140 million jobs in the U.S. the single largest sector is trade, transportation and utilities (TTU) - with 27 million jobs in a rather unwieldy sector including both retail and wholesale trade as well as transportation and utilities.
  • Next largest are education/health services, government, and professional/business services - at about 20 million jobs each.
  • In the last 4-5 years professional/business services have added the most jobs - up by about 3 million (for 26% of all net job growth nationally). Other major job producers are in TTU, education/health, and leisure/hospitality - each up by 2+ million.
  • Government employment is actually down by nearly 1.5 million, an apparent reflection of the end of stimulus combined with state/local layoffs in (delayed) response to recession related revenue declines.
  • With 12 million employees, domestic manufacturing is ever more streamlined. However, in a major reversal from decades of declining employment, U.S. manufacturers added nearly 900,000 jobs in the last 4-5 years. 
  • Average firm size is generally on the increase - except in the sectors of  information, education/health and government. 
  • The star performer in terms of wage gains is information. The total jobs count is stagnant, but a dramatic shift is taking place as the sector transitions from printing and publishing to software and internet related applications. Average wage increased by over $18,000 per year - a reflection of this shift and the strong market demand for techies
  • For other sectors, wage gains since 2010 have been more modest, up by between $1,000 (in financial services) to $6,800 per year (with construction rebound) as of Q3 2015. Across all sectors combined, wages have increased by less than 2% per year. 

Looking ahead, items of importance to monitor include translation of job growth to also support stronger wage growth, opportunities for high demand sectors like information to start adding net new jobs as the transition from older sub-sectors like printing runs its course, sustainability of domestic manufacturing competitiveness (amid a stronger dollar), and potential government job rebound.