Editorial
Front Page - Friday, April 23, 2010
VW to impact local commercial real estate market
David Laprad
Commercial real estate agent, Benjamin Pitts, says Volkswagen is going to create demand for about 3 million square feet of commercial space valued at approximately $241 million. Pitts, pictured with CAR president Randy Durham and executive officer Frankie Ryder, announced these numbers at the CAR’s spring luncheon, held April 14 at the Chattanooga Choo Choo.
Bad news for fish living in Chattanooga waters: the arrival of the Volkswagen plant is going to create nine jobs for professional anglers, commercial real estate agent Benjamin Pitts says.
There’s good news for real estate agents, though: the plant is also going to create demand for about 3 million square feet of commercial space valued at approximately $241 million.
Pitts, an agent with Herman Walldorf & Company, announced these numbers and presented the groundwork beneath them at the spring luncheon of the Chattanooga Association of Realtors, held April 14 at the Chattanooga Choo Choo. While real estate agents throughout the area have been discussing the general economic impact of the VW plant since rumors began to circulate about it being based in Chattanooga, Pitts’ talk gave them their first look at the demand the German automaker is going to create for one specific product. In addition, it was likely the first time agents had heard a talk couched so thoroughly in hardcore numerical analysis.
After warming up the room with a little auto trivia, Pitts reminded his audience of two widely published numbers: 1) once the VW plant is running at full capacity, it will be producing 300,000 cars a year; and 2) this activity will create 14,000 jobs in the Chattanooga area.
Even though several people, including one gubernatorial candidate, have quoted the second number to local media, Pitts said he was more interested in pressing toward what he believed is a more realistic number, and then using it to decide how much of demand for commercial real estate VW would create.
Pitts began by labeling 14,000 jobs “the politician’s number” and attaching a multiplier of seven to the total since it’s generally accepted that VW will be creating 2,000 jobs. According to the politician’s number, the other 12,000 jobs will come from direct suppliers and ancillary industries.
Pitts then cited Dr. Bill Fox of the University of Tennessee Center for Business and Economic Research, who said VW would create 11,477 jobs. Fox based his prediction on numbers he obtained from the Department of Commerce. Pitts dubbed this slightly more conservative tally “the UT number” and gave it a multiplier of 5.74.
While the politician’s and the UT numbers inspire optimism, Pitts continued to press toward what he believed are more realistic expectations, suggesting he feels it would be better to temper one’s expectations at the front end and then be pleasantly surprised if the numbers exceed all probability than to believe the sky is the limit and get only halfway there.
To nail down an even more conservative number, Pitts cited a study done at the University of South Carolina on the economic impact of the BMW plant on Greenville. “Why BMW?” he asked. Because of what he says are striking similarities between the two cities:
Both cities are situated similarly in relation to other states and cities; the U.S. was in the midst of an economic recession in 1992, when BMW announced its plant, and in 2008, when VW announced its plant; both cities had comparable populations within a 20-mile radius at the time of the announcements; and both cities had median household incomes close to the national average at the times of the announcements.
According to the USC study, by 2001, the BMW plant created 16,700 jobs from 4,330 positions at the plant, giving it a multiplier of 3.86. Using this multiplier, Pitts predicted VW would create roughly 7,720 jobs.
Pitts then broke down the 7,720 jobs into three categories: direct jobs (the worker receives a W-2 or 1099 from VW), indirect jobs (the worker receives a W-2 or 1099 from a VW supplier) and induced jobs (retail, service and professional positions that arise from the needs of the first two categories). After reiterating that VW will create 2,000 direct jobs, Pitts used the USC study to calculate how the German automaker will create 3,103 indirect jobs and 2,613 induced jobs (including nine jobs for professional fisherman).
Since new jobs create new demand for space, Pitts then calculated how much space, and what type of space, each of those employees would need to do his job. Using basic algebra, and eliminating jobs that would result in little or no office space, Pitts said VW would generate a need for 2,940,675 square feet of commercial real estate, including: approximately 1,184,000 square feet of new manufacturing space, in addition to the space VW is using; about 1,170,000 square feet of new wholesale and retail trade space; and roughly 586,000 square feet of new office space.
Pitts then used typical rates for office, retail, warehousing and manufacturing space to show how VW will create demand for almost a quarter of a billion dollars worth of commercial space.
Just as important to his audience at the luncheon is where this demand will be created. Pitts dismissed earlier reports discussing the impact at 10, 50 and 100 miles, and instead looked at drive times and traffic maps, arguing that some suppliers will want to set up shop no more than 10 minutes away from VW to avoid the German automaker’s stiff $4,000 per minute penalty for late deliveries. According to Pitts, 60 percent of the new demand will spring up in Hamilton and Bradley Counties, and possibly Rhea and Polk Counties.
Pitts was less specific about when the demand would arise, although he did say it had begun, with VW already having hired 600 of its projected 2,000 employees. Indirect jobs will follow the direct jobs, while induced jobs will bring up the rear.
Pitts practiced law for several years before becoming a business executive and consultant. He’s also worked in finance with a number of local high-tech ventures. Pitts earned a Bachelors of Science in accounting from the University of Tennessee before concentrating on real estate at the University of Tennessee Law School. He and his wife live in North Chattanooga.
No word on whether or not Pitts fishes.
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