Regional Insights: Industrial sites needed for future jobs

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As explained in December's column ("Regional Job Growth Increasing, But Not Enough," Dec. 1, 2013), one of the region's highest economic development priorities should be rebuilding our struggling manufacturing sector. But if a manufacturing firm wants to locate or expand in southwestern Pennsylvania, will it be able to find the land and buildings it needs?

Site location consultants report it's much more difficult to find industrial land and buildings in Pittsburgh than in other regions. The fourth-quarter 2013 industrial market report from commercial real estate firm Newmark Grubb Knight Frank shows Pittsburgh had less vacant industrial space available than 38 of the 49 regions it tracks.

While the 9 million square feet of vacant space here may sound like a lot, other regions have two to four times as much space available, in many cases at lower costs than Pittsburgh. For example, Charlotte, N.C., had 38 million square feet of vacant space, and average rents for industrial space there were $3.51 per square foot, compared to $5.14 here.

Pittsburgh is even less competitive because many of the vacant buildings here are old, and most firms won't even consider them. Newmark Grubb Knight Frank reports only 14 percent of the vacant industrial space in Pittsburgh is "Class A" space. The vacancy rate for Class A space is only 4.2 percent, compared to 9.1 percent for lower-quality space, confirming the greater desirability of the space that's in shortest supply.

Although a number of new industrial properties were being developed in Pittsburgh at the end of last year, most other regions had an even larger amount of new space under development, so our poor ranking isn't likely to change soon.

It's harder to develop new industrial buildings here because there are far fewer ready-to-go industrial sites and industrial parks in Pittsburgh than in other regions. There are two major reasons for this:

Problem 1: Limited flat land. The scenic beauty of our hills and rivers is great for tourism, but it has the unfortunate side effect of making Pittsburgh one of the most difficult and expensive regions in the country in which to develop the large flat sites that manufacturing plants and distribution facilities need. Nearly 70 percent of the land in southwestern Pennsylvania has a slope greater than 8 percent, whereas in Columbus, Ohio, for example, less than 200 miles to the west, less than 20 percent of the land is that steep. Turning land with steep slopes into industrial sites can cost twice as much or more than land that is flat to begin with.

With a limited supply of flat land, it's not surprising that most flat sites in our region have already been used for something. Although reusing vacant industrial sites for new businesses is a desirable goal, those sites are generally also expensive to develop because existing facilities have to be demolished, any environmental contamination has to be cleaned up, and the infrastructure has to be modernized.

As a result, it's almost impossible to develop industrial sites here without significant government subsidy to offset the extra costs of the land preparation and infrastructure.

Problem 2: Governmental fragmentation. Southwestern Pennsylvania is carved up into 548 cities, boroughs and townships, more than almost any other region in the country. Because they are so small, most of our municipalities and many of our counties don't have the financial resources needed to offset the higher costs of developing large industrial sites.

Moreover, because a large part of an industrial park needs to be vacant so that sites are available when firms or developers need them, an industrial park will contribute much less property tax revenue to its host municipality than if the property were developed and filled with housing or retail stores. As a result, small municipalities may be reluctant to host an industrial park without a way to offset their tax losses.

These are not new problems for Pittsburgh. Over a half-century ago, the Regional Industrial Development Corp. was formed because regional leaders realized there weren't enough modern industrial sites to support new business growth and no municipality could address the problem alone. Today, six of the 10 largest business parks in the region and many of the region's jobs are here thanks to the efforts of RIDC starting in the 1960s and 1970s. Similarly impressive work was done by the Westmoreland County Industrial Development Corporation and other county development agencies.

In the mid-1990s, a shortage of sites developed again, and a number of manufacturing businesses that wanted to locate here were turned away because there was no suitable space anywhere in the region. To address this, the Southwestern Pennsylvania Growth Alliance -- a public-private partnership of elected officials and business executives from all 10 counties -- worked together to assemble the first-ever regional priority list of industrial site projects.

The state responded by providing nearly $40 million in grants for industrial site projects in all 10 counties. Many of the manufacturing and technology businesses providing jobs here today are located on industrial sites developed over the past two decades using funding obtained through that effort. Unfortunately, the Growth Alliance was disbanded nearly a decade ago.

It takes years to develop new industrial sites and buildings, so regional leaders need to take steps today to address the shortage of sites and buildings in the region before it gets even worse. No municipality or county can address this alone, because different businesses will need different types of sites, and because the jobs at each site will be filled by the residents of municipalities and counties throughout the region. Unfortunately, we have no regional financing mechanism for economic development infrastructure, and one needs to be created.

Help from state government is essential, not only because of the magnitude of the investment required, but because the majority of the tax revenues paid by the businesses and employees on the sites will go to the state, not to local governments. However, the region shouldn't have to fight to get its fair share of funds from the state's discretionary grant programs for economic development. The General Assembly and governor should delegate decision-making authority to our region for a large portion of state economic development and infrastructure funding if the region creates an effective mechanism for infrastructure planning, decision-making and financing.

An aggressive program for investing in industrial sites and other infrastructure should be a priority for both state and regional leaders. It will create jobs in construction, manufacturing, and other industries and help get our sluggish economy back on track.

Harold D. Miller is president of Future Strategies LLC and adjunct professor of public policy and management at Carnegie Mellon University. He publishes, an Internet resource on regional economic and civic issues.

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