Move over, coastal cities. Once dismissed as “flyover” states, cities in the Midwest are becoming popular destination markets.
Both Pittsburgh and Columbus are thriving in post-recession America by embracing innovation, attracting young tech talent and fostering an affordable climate for doing business.
Thanks to flourishing industries like logistics, technology, finance and e-commerce, both cities are shedding the “Rust Belt” and “flyover cities” monikers, as they experience impressive economic resurgences.
Columbus and Pittsburgh: Hardly the “Pitts”
The metro area GDP for Columbus reached US$130.8 million in 2016, a sizable increase from US$95.2 million in 2012. It boasts at least 20 Fortune 1000 headquarter companies. Its working population is among the most educated in the country.
“Our region is growing faster and is more diverse than at any point in our history. Because of this, we’re working hard to set new economic goals and developing a plan that will get us there,” says Kenny McDonald, President and CEO of Columbus 2020, an economic development organization for the 11-county Columbus Region.
In May, Columbus 2020 met its goal of adding 150,000 net new jobs to the region two years earlier than projected. McDonald says the city owes its economic success to its advantageous location—Columbus can access the eastern half of the U.S. and Canada—and a talent base that is largely available from major universities in the surrounding areas, such as Ohio State University.
With the growing number of start-ups and the big companies in the area, people realize they can have not just one job at a good tech company, but a tech career here
Pittsburgh may be historically known as the “Steel City,” but economic activity in the region has made it one of the ascendant hubs of innovation in America.
“The strength of the region is no longer its rivers and raw materials, but its world class universities and high-skilled workforce,” says Jeffrey Ackerman, managing director at CBRE.
Big tech companies have set up shop in Pittsburgh, tapping into schools like Carnegie Mellon University’s School of Computer Science and the University of Pittsburgh. Successful startups like DuoLingo and AlphaLab have opened offices in the city’s trendy East Liberty neighborhood. The city has also become known as a center for robotics and artificial intelligence—home to the National Robotics Engineering Center and to growing AI companies like Petuum and Argo AI.
“We’re tracking close to 70 companies in Pittsburgh with a robotics focus and a majority of these companies have spun out of Carnegie Mellon University (CMU) or tapped into the resources of the National Robotics Engineering Center, which is an operating unit within CMU’s Robotics Institute,” Ackerman says.
The city ranked fifth in CBRE’s 2018 Tech Momentum Markets, owing its success to having the fourth-highest concentration of millennials as a portion of the urban population at 23.5 percent, well above the national U.S. average of 13.9 percent.
“With the growing number of start-ups and the big companies in the area, people realize they can have not just one job at a good tech company, but a tech career here,” says Kamal Nigam, a Carnegie Mellon graduate, in a 2017 New York Times interview.
In Columbus, its tech talent labor pool was 4.5 percent of its total employment, a whole percentage point above the national average of 3.5 percent, per the CBRE Scoring Tech Talent Report. Like Pittsburgh, Columbus experienced a growth in its population of millennials in their 20s, growing by 5.3 percent in the past five years. The number of tech degree graduates of local colleges and universities in the Columbus metro area grew by 12.1 percent in the past five years, per CBRE.
“Markets that have a stable economic base often begin with major universities that are surrounded by a tech sector and large national and international companies,” McDonald says.
Michael Copella, managing director CBRE in Central Ohio, believes that the mix of insurance companies, retail brands (like Victoria’s Secret, Sabarro, and Abercrombie & Fitch), logistics, tech companies and distribution centers combine to make a unique economy that appeals to young graduates from the Columbus area.
The strength of the region is no longer its rivers and raw materials, but its world class universities and high-skilled workforce.
As a logistics hub, Columbus can access 46 percent of the U.S. population and 46 percent of the U.S manufacturing capacity within a 10-hour truck drive, per Columbus 2020. Columbus also boasts the nation’s second-lowest effective tax rate on new distribution centers. The logistics market in Columbus has access to local young talent with relevant skills training—Ohio State’s Fisher School of Business is ranked among the top 10 in supply chain and logistics programs in the country; while Columbus State Community College and Franklin University both have their own logistics and supply chain programs.
“There’s been innovation and change within logistics in the region, and companies have been recruiting locally at an accelerated rate in the last five years,” says Copella.
“In addition, Columbus boasts a high quality of life, a low cost of living and has a worldwide reputation for being highly collaborative, which has made it easier for local companies to recruit talent from other regions,” Copella adds.
A Relatively Affordable Place to Set Up Shop
Strong economic conditions, coupled with tightening labor markets, are leading to constrained tech talent job growth and increasing costs.
“This has accelerated the expansion of tech talent pools across the U.S. to meet this demand, starting with the increased numbers of tech degree graduates,” says Colin Yasukochi, director of research and analysis for CBRE in the San Francisco Bay Area. This has also resulted in increased demand for commercial real estate in large and previously under-utilized regions from both start-ups and established companies.
For instance, the typical 500-person tech company needing at least 75,000 square feet of office space can expect to pay US$4.7 million in annual rent in the San Francisco Bay Area market, which ranked first in the 2018 Scoring Tech Talent Report, per CBRE. In Columbus and Pittsburgh, that cost is considerably lower, at US$1 million and US$2 million, respectively.
The enviable mix of relatively affordable cost of business and a deep pool of tech talent have made Pittsburgh and Columbus both cities that are neither rusty nor flyover.
“We’re on a trajectory to break out of the classification of a midsize city and stake a claim that is closer to being one of the larger metro markets in the country,” McDonald says.