Southeast Mesa Strategic Development Plan Mesa, Arizona Current Trends Economic Base Memorandum Prepared For: The City of Mesa Prepared By: Elliott D. Pollack & Company 7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251 In Partnership With: Lee & Associates October 2007 Task 2d: Current Trends Economic Base Memorandum TABLE OF CONTENTS Executive Summary i 1.0 Introduction 1 2.0 Regional Demographics and Economic Outlook 6 3.0 General Commercial Market Trends – Metro Phoenix 23 4.0 Local Competition for Business Locations 56 5.0 Examples of Development Sequencing 81 6.0 Perceptions of the Development Community 97 7.0 Analysis of Reliever Airports 105 8.0 Summary and Conclusions 121 TOC Task 2d: Current Trends Economic Base Memorandum Executive Summary Elliott D. Pollack & Company has been retained to provide an economic evaluation of the development potential of the area surrounding Phoenix-Mesa Gateway Airport in Mesa, Arizona. The study area that is the focus of this analysis is referred to as the Land Use Evaluation Area and includes approximately 33 square miles of land. Because of its large scale, the implementation of a successful development plan will be of benefit not just to the City of Mesa residents, but to the broader region as well. Analytical Framework This analysis begins with a macroeconomic assessment of the overall commercial real estate market in Metro Phoenix. The study then narrows in focus and includes an evaluation of recently released population and employment projections from the Maricopa Association of Governments on the more proximate region. This analysis concludes with the development of alternative scenarios of growth in the Southeast Valley and, more specifically, to the market area surrounding Phoenix-Mesa Gateway Airport. A competitive analysis of other airport and commercial sites was also conducted as part of the research into the growth potential of Phoenix-Mesa Gateway Airport. This included a review of the economic characteristics of the Mesa Gateway Area along with similar analyses of various alternative employment centers throughout the Valley. The competitive analysis also includes a review of the long term potential of various industries that may be targeted for location in the area. To some extent, the macroeconomic analysis contained in this report provides some perspective into the upper and lower economic development bounds of the Mesa Gateway Area. This perspective, when combined with more targeted analysis regarding MGA economic development potential, will establish the foundation from which to formulate a strategic development plan. The airport specific analysis and formulation of a strategic plan will follow in subsequent memorandums on this topic. The following recommendations are broken down by breadth of issue. The macroeconomic conclusions are primarily broad recommendations that need to be considered as the City of Mesa moves forward with the implementation of its final economic development strategy. The microeconomic conclusions are primarily focused observations that support the formulation of the macroeconomic conclusions. Macroeconomic Conclusions The Greater Phoenix economy is currently built on sound economic fundamentals that have not changed. This bodes well for the long term development of the Phoenix-Mesa Gateway Airport. However, the next handful of years might prove to be difficult. In addition to impacts related to a slowing national economy, the health of the local residential real estate market will continue to worsen until we reach a balance between i Task 2d: Current Trends Economic Base Memorandum supply and demand. This equilibrium will not occur until the area fully absorbs the tens of thousands of excess single family residential units that were built in 2004 and 2005, and until permitting activity stabilizes to again match population inflows. In addition, it is likely that this short term condition will begin to weaken the currently strong commercial real estate market by this next year. Again, these are short term conditions that need to be considered, but will ultimately have minimal impact on the long range strategic plan for the Phoenix-Mesa Gateway Airport. The following represents the primary issues that indeed need to be considered while formulating this plan. Regional Influences Possibly the most important point that needs to be made is that, because of its disproportionately large employment center, the City of Mesa will not be in full control of its own destiny related to commercial development. While the successful development of the site is certainly of significant value to City residents, the demand for commercial space and the provision of area employees will come from the broader region. Planners and administrators will need to be vigilant in keeping up with the broader region’s economic development activity and will need to consider these development conditions when formulating interim, short term strategies. The City of Mesa is not an economic island. Development Timing Development timing is another major macroeconomic issue. The extent of development success will vary considerably from decade to decade. Through 2010, competition from other parts of the Greater Phoenix area will limit expansion potential. This will be exacerbated by the fact that additional population growth in the Southeast Valley must occur to achieve a truly superior employment and population base. During this period, planners can expect the business locations to be dominated by industrial operations. It is possible that during the first decade some form of inducement will be required to make the area competitive in terms of business locations. While it may not be economically optimal for local cities to provide “giveaways”, basic incentives are now part of the global economic development culture. To the extent possible, the City should utilize and promote state programs and provide low or no cost City specific incentives on an as needed basis. These could include some form of tax or development fee abatement or reduction. These could also include some cleverly constructed incentive packages that only benefit the locating business if the company remains at the site for an extended period of time. Of course, the use of incentives will be limited by the City’s fiscal conditions. During the second decade, the Mesa Gateway Area will surpass most other parts of the Metro Phoenix area in terms of preferred location attributes. If the proposed south region freeway indeed connects to I-10, the value will increase even further. During the 2020 to 2030 decade, assuming proper planning, the airport area should begin to see a shift in development activity from industrial to office uses. ii Task 2d: Current Trends Economic Base Memorandum Opportunities by Industry During all phases of development, planners and economic developers can pursue businesses in many types of industries. The old model was for aerospace companies to locate near secondary and reliever airports. However, global competition has resulted in the need for companies in many other industries to further utilize air transportation to deliver goods in a timely manner and to reduce inventory holding costs through just-in- time strategies. This new model means that regional planners can look beyond the typical set of industries and seek out companies that have the best opportunity to bring dollars into the region, create additional spin off operations, and create higher wage jobs. Ultimately, there are multiple levels of opportunity that must be understood. First, long term growth opportunity varies by industry. For example, the telecommunications industry appears to have less opportunity for growth than biotechnology, for instance. However, biotechnology does not typically produce high levels of employment and may be difficult to attract to the Mesa area since state efforts are being focused on Downtown Phoenix. Each industry has a different economic outlook and potential for expansion into Arizona, Greater Phoenix, and the Phoenix-Mesa Gateway Airport area. Next, opportunity for expansion specifically into the Mesa Gateway Area also varies by industry. The City of Mesa posts certain natural economic advantages and disadvantages. These basic economic advantages and disadvantages can be enhanced or dampened depending on the quality of the local planning efforts. Some site specific advantages include the close proximity to a freeway, significant opportunities for airport related commerce, opportunities for rail related commerce, the on-site location of Arizona State University, and the improving regional workforce quality. Different industries have different needs. The specific needs of each industry must be fully understood. Finally, the City of Mesa must have a preliminary vision for the area. The intersection of: 1) the individual industry outlooks and needs, 2) specific Mesa Gateway Area economic advantages, and 3) the City of Mesa economic development vision, will ultimately produce the optimal strategic focus. Ultimately, a well considered development plan will aid in creating a favorable branding of the airport region, thus resulting in benefits beyond the listing of specific site location factors. Aerotropolis One stakeholder entity has introduced the term “aerotropolis” into the discussion of the future of growth of the area. It is based on the premise that airports are essential for businesses’ ability to compete in the global market given the heightened role of logistics and distribution