Cities Driving the US in 2018

JUNE 11, 2018

I travel to the US each year and spend a week working in New York and a week in San Francisco. Why, because these two cities set the pace in global real estate and business, respectively. My search is about learning what these cities have that we don’t in Australia and what we can learn from their successes and failures. Can we see the next wave? Is it perfectly formed or about to dump? What value can we add to our clients through our understanding and knowledge of the global real estate markets and where are the opportunities?

Ross Love CEO of Boston Consulting Group, new HQ in Hudson Yards

I am fortunate because my company, Knight Frank is well represented across America. It is known in the US as Newmark Knight Frank and has large teams of brokers, tenant representatives and the best research available. I can be instantly connected to the pulse in these markets. I have to say it is amazing and I learn so much. I’ve got really great colleagues and they show me what’s going on, why it matters, and they make learning fun. If I need to connect an Australian landlord to an international tenant I can and do.

This year I also investigated Boston, Massachusetts to learn more about one of our clients, Pembroke and I paused for a day in Omaha, Nebraska to attend the Berkshire Hathaway AGM to hear the Oracle of Omaha, Warren Buffett and his Vice Chairman, Charlie Munger, outline their plans for the US$500 billion investment juggernaut.   

The US global cities are prosperous and there are new industries evolving. The stock market leaders are evidence of a new breed of business and entrepreneur. These are the FAANG heavyweights – Facebook, Amazon, Apple, Netflix and Google. These businesses are embracing technology as leaders, with pioneering spirit and a thirst to be the best and the biggest. A stock market challenged by a financial crisis in 2008 has re-emerged and is forging ahead with already 10 years of gains. Companies are reinvesting in themselves and the government has reduced company tax, helping business to be more profitable and hopefully encourage more employment and wages growth. Politics is much discussed, headlines challenge major sporting events, but I don’t see it truly bothering the average worker. It is therefore an exhilarating and a flamboyant time, during a period of achievement.

Intel’s Museum

What is at its core? Education and a pioneering spirit. Educational establishments cultivate the best and the brightest and encourage competition. It is no secret that business wants its share of the smart people. That’s why cities and states relish universities with reputation. Stanford is San Francisco just as Harvard and MIT are Boston. With bright workers in demand there is a “war for talent” raging. It is fascinating to witness traditional career employers, like investment banks, offering university and college graduates employment opportunities, only to find that those same students have entered into deals with technology companies, which follow the bank’s training programme. In other words, to start work after university and then after the bank’s training. Talk about an advanced poaching programme.

Americans and Aussies have an enormous amount in common, so it is not difficult to make acquaintances. On each occasion I visit the US, I return with at least two new business opportunities. I put this down to American history. The frontiers of USA were built on the hard work and progress of adventurous trailblazers (pioneers). Consequently, these characters love traveling salespeople, which is what I am. Aussies do what most Americans dream of, we are prepared to travel, something that they would like to do, but haven’t done much of. Of course, we have the advantage that our planes are much faster than theirs, our flights arrive in a matter of hours whereas their flights to Australia take days (I jest). 

Boston is propelled by renowned institutions like, Harvard, MIT, Boston College, Boston Uni, North Eastern Uni and others. That’s why it delivers high achievers in Medicine, Politics, Business, Life sciences, Biotech, Aero Sciences and Technology. I spoke to people about the research on synthetic vaccines, property, banking and other business activities. They are chasing new life challenges and improvements.

Oculus, NYC

New York is known as the capital of capital and we rate it as the No 1 city in the world, according to our Knight Frank City Wealth Index 2018. NY took out the No.1 position overall as well as the No.1 position across all categories – Wealth, Investment, Lifestyle and Future. In terms of real estate, a two-level apartment at 220 Central Park South is currently for sale at US $250 million and Google have acquired Chelsea Markets at 75 Ninth Ave for US $2.4 billion. These are eye watering numbers and breath-taking results.

There isn’t a bad part of Manhattan anymore just areas with more and more upside. It is all about prosperity, big thinking, investment and returns. Night and day are irrelevant and so too is work / life balance. How could you possibly find that “in a city that never sleeps”. NYC is about sacrifice for rich rewards and that’s why so many people don’t make it. It’s why even surviving is hard. As Frank Sinatra sang “If I can make it there I’m gonna make it anywhere”. Alicia Keys sang “a concrete jungle where dreams are made of, there’s nothing you can’t do”. These songs are stories and warnings, New York will eat you alive, so you have to be sharp at all times. A concrete jungle is apt. In Africa, animals are either looking for prey or being preyed upon. Eat or be eaten New Yorkers…

Time’s Square

My colleagues tell me that an average salary of $80k pa means that half will go in rent. Accommodation is small and expensive. Our research shows that US $1m or AUD $1.33m buys you just 25m2 of apartment living (that’s student accommodation proportions). Small isn’t good either because there’s not a lot of community space. There are 70 parks in NY and those parks make an area exclusive. Everywhere else public space is used and there is really nowhere to stop. There’s no café society like Australia where business tolerates patrons loitering. You are either transacting or wasting time, so movement is constant.

Hudson Yards

San Francisco is the engine room of the US economy. The US economy is the largest in the world at $19 trillion with China second at $12 trillion. Interestingly though, the State of California is the 5th largest economy at $2.75 trillion, ahead of the UK’s $2.625 trillion. California includes San Francisco, Silicon Valley and Los Angeles. Business is powering, real estate is benefitting, not only from employment growth, office expansion but rising housing prices too. Life is good but socially it has overbalanced. Prosperity in San Francisco now has an ugly social consequence and it is homelessness and housing affordability. Housing supply has stalled, and traffic congestion is an issue.

Sales Force Tower cluster, San Francisco city

The economy is running fast. Newmark Knight Frank’s (NKF) Head of Research, Jonathan Mazur questions why I am concerned about the Australian property market (showing similar signs of prosperity to NY and SF) when all the lead indicators are strong. I tell him it is reasonable to think and plan in cycles and that the one we are in is very mature. He says to me “but 2021 is a long way out and unpredictable, why worry now about something which may or may not happen, things are good, operate in the now”. NKF’s Vice Chairman, Phil Mahoney says on the same topic “A Baseball game has nine innings, in property in the US we are in the 13th or 14th innings”. Phil’s optimism mirrors Jonathan’s and it is not difficult to forget about my theory and stay focused in the moment, on places raging with success.

Perhaps we, Aussie’s, overthink the possibilities, perhaps failure in Australia is a bigger fall with dire consequences. In the US failing isn’t a bad thing because with failure comes learning and experience. In the US the greater sin to failure is not trying.