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Gentrification Is in the Eye of the Beholder

• May 12, 2014 • 2:00 AM

Pittsburgh from the West End Overlook. (Photo: Ronald C. Yochum Jr./Wikimedia Commons)

Lessons from Pittsburgh and Cleveland.

The market faithful blame a rise in population. The Marxist faithful blame the powers that be. Concerning gentrification, both are wrong. The conundrum named “Cleveland”:

While the gritty city center had for decades struggled to revitalize, now a surge in demand from a generation of 20-somethings wary of owning a home and interested in urban living has pushed apartment vacancy down to about 5%, with rents rising.

By 2015, the Downtown Cleveland Alliance projects that the area will have 7,071 residential units, up from 2,881 in 2000. That includes nearly 600 units in seven office-to-apartment conversions that are under way—the most ever at one time for the city. …

… Until recently, K&D focused on the suburbs around Cleveland, eschewing the downtown because rents were low. But in 2008, after seeing some growing demand from young renters, the company bought 668 Euclid, a mostly-vacant office building that had once been a department store. K&D converted the building to 236 luxury apartments aimed at young professionals who work downtown. At the time, the economy was reeling and Mr. Price braced for a slow reception. Instead, the building leased up quickly. “We were moving people in as fast as we could finish the units,” he says. “We built it—they came.”

Emphasis added. “The rental market is very tight, with lots of demand,” is not a comment anyone expects to be made about the urban core of Cleveland. The city struggles with population decline and residential vacancies. Yet there it is in the Wall Street Journal, gentrification pressure building up downtown and displacing office space.

There are two tensions in play for a Rust Belt city such as Cleveland. First, not all dying cities fail to support industry downtown. Thinking about renting real estate for your cool software company in Pittsburgh? Get in line:

Various measures of success define a metro area and one of the best is that companies want to do business there. That’s more than a feel-good notion — it’s quantifiable in office vacancy rates. The market doesn’t lie and what it says about Pittsburgh is a compliment.

In the fourth quarter of 2013 the office vacancy rate fell to 8.1 percent, says Colliers International, a real estate firm, making it one of the lowest in the nation, which has a rate of just under 12 percent.

Downtown is among the desirable spots, with a 10.5 percent vacancy rate. For the choicest spaces, Class A, the rate is only 7.4 percent.

Pittsburgh has an office space shortage downtown. Downtown Cleveland has an office space glut. Thus, converting office space into residential space in Cleveland makes sense. Lest you think that Pittsburgh wants for urban core residents (tension number two), go fish:

NerdWallet, a San Francisco company that offers financial recommendations on personal finances, said there are several reasons that Pittsburgh’s rise in rent is outpacing New York City’s. Pittsburgh has a lower cost of living than New York City, which has consistently been expensive. A rise of $120 per unit in Pittsburgh is a larger percentage than a rise of $196 in New York City. While New York has been an economic superpower for the past century, burgeoning cities such as Pittsburgh are growing incredibly quickly, becoming economies that can compete with tech giants such as New York City and San Francisco. Google recently signed a lease to expand its Pittsburgh offices, and Carnegie Mellon’s Robert Mehrabin Collective Innovation Center counts Apple, Disney and Intel Research Lab as its tenants. Pittsburgh’s growing industries are a factor in the city’s rising rent prices, and the city’s status as a budding tech hub has attracted workers. The presence of several high-quality universities in Pittsburgh (which steadily churn out educated job seekers each year, many of whom stay in the city), a comparatively low cost of living for a big city and the presence of other growing companies have attracted businesses to the area as well. In the future, residents will likely see a rise in rent prices to correspond with future economic growth.

Residential rents in Pittsburgh are rising faster than those in New York City. To review, dying Pittsburgh with its demographic decline has a supply shortage in office and residential space, which are driving up rents in both sectors of the market. Why? Those writing about gentrification, whether journalist or scholar, have no idea.

Jim Russell

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