Commercial Real Estate Mastery: Episode 32
Beware The "Wired-Belt"
There’s something strange going on in real estate – something not seen before in over a century. And it revolves around a concept called the “Wired Belt”. In this Commercial Real Estate Mastery podcast we’re going to explore the “Wired Belt” phenomenon, and how to invest on the right side of this megatrend.
Episode 32: Beware The "Wired-Belt" Transcript
Back in the 1800s, every time they brought out a new invention, it cost people their jobs. People who would go out and farm fields were replaced by tractors. And we had an industrial revolution in America, and business pioneers figured out new ways to do all kinds of things using technology and engines and assembly lines and with each new thing more people lost their jobs. And now we're entering a new phase in America, one that's very, very powerful for real estate, something we've not seen in half a century, and it will also have the same types of ramifications.
This is Frank Rolfe with The Commercial Real Estate Mastery Podcast. We're gonna talk about the rise of what some are now calling the Wired Belt. Now, here's what the Wired Belt is all about. For 150 years, technology punished blue-collar workers. But now, suddenly, new technology in the form of AI is punishing white-collar workers. And if you look up the topic, you'll see that they anticipate AI will wipe out 9.3 million jobs in the years ahead, which is about $757 billion of white-collar wages. And they found that just 10 metros represent 38% of this total job loss.
Back in the 1980s, they coined the phrase the Rust Belt. The Rust Belt was back when you had entire cities, even states, whose economies collapsed because of all this innovation just ruining old-line blue-collar businesses. Steel mills, all these different things, they all went down the drain, car manufacturing, everything kind of crashed in those Rust Belt areas. And the new hotspots were the places where technology was blossoming. But now, suddenly, it's changed. Suddenly, the very forces that created those unique hotspots are kind of cannibalizing themselves using AI.
So what are the top 10 metros then that will represent the estimated 38% of all job loss? Well, here you go: San Jose, California; Sunnyvale, California; Santa Clara, California; Washington, D.C.; Boulder, Colorado; Los Angeles, California; Chicago, Illinois; Boston, Massachusetts; New York, New York; and Dallas, Texas. Those are the markets they think will lose 38% of their total white-collar jobs lost.
Terrible, terrible position to be in. And that's what they call the Wired Belt. It's those 10 cities. But yet, there's more. There's more to the list. That's just the top 10. That's only 38% out of the 100% of the jobs that they feel will be lost, that 9.3 million jobs.
But then you look in the same reports on the areas that are least at risk. These are the opposite of the Wired Belt: Columbus, Ohio; Nashville, Tennessee; Kansas City, Missouri; St. Louis, Missouri; Salt Lake City, Utah; Pittsburgh, Pennsylvania; Charlotte, North Carolina. And let's just expand it to make it easy. If you look at it on a map, it's the entire Rust Belt. The entire Rust Belt is coming back to life at the same time the Wired Belt is about to start going down the drain.
But what does it mean if you're a commercial real estate investor? That's all great trivia and all, but who cares? You might say, why do I care if the Wired Belt is in trouble and the Rust Belt's coming back to life? Well, that's because these kinds of trends take a long time. A long time. Long time in the making, sometimes a century. And if we're just now standing at the very start of a one-century trend of decline in the Wired Belt, then when you're making your real estate acquisition wish list, you want to be in the markets that were formerly doing poorly. You want to revisit those Rust Belt cities and states.
I've had a lot of, lot of people who ask me, "You know what? I'm looking at these lists of the top markets in America on apartments and everything else. I keep seeing Columbus, Ohio. Why is Columbus, Ohio on that list?" I get the same questions about Kansas City, Missouri. It's a leading, leading state in so many different categories people track. "Why?" I get asked. And that's because everything in America has always moved in cycles. Things are hot, then they get cold, then they go back to being hot again.
Kansas City, for example, was the true gateway to the West. If you were a pioneer, you had to pass through Kansas City typically to go out west. And everything going out in the West in America they brought it to market in Kansas City. That's where all your giant herds of cattle that they moved into the market to sell them, like you see in those old wagon train TV and movies, that's where it was all going. It was going to Kansas City. That's where all the meatpacking was. You'd try and drive your herd to Kansas City. That was the big city back then. And they would move those cows on railroad cars away. You could go into town, you could buy new clothes, you could get booze, whatever the case may be. So Kansas City was super hot, but that was super hot like in the 1800s. Then what happened? It went down the drain, as all of the Rust Belt area did for the most part. And now suddenly it's coming back. Same with Columbus, kind of the same story. Same with every market I just named out in the Rust Belt. But that's how America works. We're always working in cycles.
And the key is you want to be going into a market that's in the cycle when it's going up. Because all of these cycles are kind of like an elevator. It goes up and it goes down. When it goes up, property values go up, rents go up, things get stronger, valuations go up. When the elevator is going down, the opposite occurs. You have greater vacancy, you have lower rents, and your values are declining. And people don't want to buy you anymore because you're no longer hot.
So I guess what I'm saying is there's a macro thing going on right now on hot markets. And you can start feeling it. If you look at the lists of things that are hot and not, you can start seeing this changeover. Suddenly, the Rust Belt elevator is going up and the Wired Belt elevator is going down. Now, we're only at the very start of this trend. So if you're looking at investing in real estate, this is a really good time to buy in to the concept of the Rust Belt coming back to life, as well as avoiding the decline of the Wired Belt.
But do your own research. Start looking at these different markets. If you haven't invested yet, if you're just starting your quest to buy a commercial property, you need to play devil's advocate and say, "Wait a minute, maybe what I've been thinking are hot, maybe that's all wrong. Maybe times have changed."
As Sam Zell, the largest investor of all time, number one in office, apartments, and mobile home parks, once said, "When everyone is looking left, look right." And right now, when you look right, what it's gonna tell you is you want to divest out of the Wired Belt and reinvest into the Rust Belt.
This is Frank Rolfe with The Commercial Real Estate Mastery podcast. Hope you enjoyed this. Talk to you again soon.
