United States / Spotlight Reports
Moving on up: Top industries to benefit from urbanization

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by Administrator
Feb 14 2014

A growing proportion of the US population is moving out of suburbs and into cities; in fact, an estimated 22.0 million individuals have moved to cities across the United States between 2008 and 2013. Based on US Census data and IBISWorld estimates, more than 85.0% of US GDP is generated in cities, and more than 80.0% of new jobs are created in urban areas. US economic activity is expected to escalate further over the next five years due to a steadily growing population and rising per capita income in metropolitan areas. In the five years to 2013, GDP for the top 15 grossing US cities grew at an average annual rate of 2.2%, reaching $8.6 trillion. Moreover, this trend of urbanization has spread to mid-tier cities (those that rank between 16 and 30 on the US GDP scale). The GDP of mid-tier cities grew at an annualized 2.4% to $2.0 trillion in the five years to 2013.

This rapid migration of workers, families and capital has positively affected several industries. IBISWorld queried its database of more than 1,200 US industries and identified six that are poised to respond particularly well to growing urbanization in the five years to 2019.


IBISWorld anticipates the Apartment and Condominium Construction industry (IBISWorld report 23611b) to increasingly benefit from urbanization. Companies in this industry are primarily responsible for the construction of multifamily homes, which are ideal in high-density urban areas. In the five years to 2014, industry operators have been able to rebound from the recessionary lows they suffered in 2009. During this five-year period, rental vacancy rates decreased as the apartment rental market expanded, thus pushing demand for new construction projects. In particular, demand for construction grew thanks to an increasing number of potential renters, tighter mortgage lending, a rising aversion to homeownership and slow economic activity. As a result, revenue for the Apartment and Condominium Construction industry has grown at an average annual rate of 9.1% from 2009 to 2014. Profit margins for operators in this space are still recovering, however, reaching only 3.0% in 2014. As the US economy continues to recover and job seekers flock to metropolitan areas, demand for the industry’s services will continue to mount, especially in cities with rapidly expanding companies in the healthcare, technology and finance sectors. These industries are attracting an increasing number of young professionals and college graduates, a demographic that has boosted the population of urban areas. IBISWorld expects revenue for the Apartment and Condominium Construction industry to increase at an annualized rate of 3.7% in the five years to 2019.

Similarly, revenue for the Apartment Rental industry (53111), in which operators act as lessors of residential buildings, has grown robustly during the past five years to an estimated $139.0 billion in 2014. This growth can be attributed to a weak housing sector and a growing population looking for housing accommodations in urban areas. Even as the Great Recession took its toll across the general economy, the rental vacancy rate dropped to its lowest level in more than a decade. The industry is therefore expected to grow an annualized 2.5% in the five years to 2014, with profit reaching 33.2%. Because households still face stringent mortgage lending and increasing interest rates, companies in this industry are well positioned to continue expanding as urbanization accelerates in the five years to 2019. IBISWorld estimates revenue for this industry will grow at 2.0% over the next five years.



The Testing and Educational Support industry (61171), which, in addition to serving general education needs, also specializes in consulting assignments for educational institutions, has been propped by healthy growth in demand over the five years to 2014. Revenue has increased at an annualized 3.4% as federal, state and municipal regulations have begun implementing and enforcing academic standards. Moreover, as municipalities and cities faced budgetary hurdles, primary and secondary schools have increased demand for industry services, especially for testing, assessment and data analysis. For instance, the New York City Board of Education operates the largest system of schools across the United States, serving about 1.1 million students in more than 1,500 schools and operating a budget of $19.8 billion in 2013.

During the five years to 2019, this industry is expected to continue growing rapidly. As the student population in cities rises and budgetary pressures ease, major cities are likely to increase spending for educational services. Accordingly, IBISWorld expects total revenue for the Testing and Educational Support industry to increase at an average annual rate of 4.1% as the number of inhabitants in urban areas spike and stimulate increased spending. Moreover, metropolitan areas are generally trendsetters for educational programs, providing stable demand for educational consultants.

Food service

Establishments in the Single Location Full-Service Restaurants industry (72211b) are more heavily concentrated in urban areas due to higher population densities in cities allowing for a greater number of customers. Industry operators are particularly sensitive to changes in disposable income and consumer confidence. In the five years to 2014, industry revenue is expected to increase at an average annual rate of 3.1%. In 2013 alone, restaurants recorded profit margins of 6.2%. Moreover, industry operators based in cities have performed well by targeting niche sectors like health-conscious urban inhabitants.

Similarly, the Street Vendors industry (72233), which will generate an estimated $1.2 billion in revenue in 2014, is anticipated to benefit from population growth in metropolitan areas. In the five years to 2014, industry revenue is expected to expand at an average annual rate of 5.0%. Operators in this industry have been able to serve customers by offering relatively affordable, convenient and unique food options. In the five years to 2019, an increasing number of new street vendors, attracted by the industry’s low barriers to entry, will keep competition high and restrict the average industry profit margin from expanding. However, total industry revenue is still projected to rise at an annualized 2.7%, reaching $1.4 billion over the five-year period. Furthermore, growing urban areas will necessitate employment growth for full-service restaurants and street vendors, which are expected to add more than 132,000 workers in the next five years.


As Americans continue to move away from rural areas into urban centers, the majority of cities across the United States are anticipated to invest heavily in public transportation. Companies in the Public Transportation industry (48511) are expected to generate $40.3 billion in total revenue in 2014, benefiting heavily from federal funding. For instance, the American Recovery and Reinvestment Act of 2009 designated $11.5 billion to mass transit and rail projects. This funding is expected to help boost industry revenue by an annualized 1.2% over the five years to 2014. State funding has also contributed to the industry’s growth; California has levied additional taxes to pay for the expansion of various subway and commuter rail systems across major metropolitan areas. Highlighting the crucial need for public transportation, the Metropolitan Transportation Infrastructure Survey conducted for the United States Conference of Mayors, illustrates that more than 40.0% of all mayors surveyed across the United States highlighted the need to grow public transit, rather than allocate the bulk of resources for maintenance projects. Therefore, IBISWorld expects total Public Transportation industry revenue to grow at an average annual rate of 2.9% in the five years to 2019.

Looking forward

As the US economy picks up during the next five years, both the rate of urbanization across the country and the per capita income of urban residents are expected to accelerate. This will lead to growing demand for apartment construction, testing and educational support, single location full-service restaurants, apartment rental, street vendors and public transportation. Although operators in these industries are not anticipated to encounter a lack of demand in the five years to 2019, they are expected to face more intense competition among peers for market share within the rapidly growing urban markets. The benefits of urbanization, though, will increase the number of workers and establishments operating in these industries.