Why America’s Downtowns need the New AI Economy
The rise of AI, catalyzed by innovations like ChatGPT less than a year ago, has unleashed a new economic era. For cities like Pittsburgh, Detroit, and Buffalo—long-standing industrial hubs now navigating economic transformation—AI presents a unique post-Covid repositioning opportunity. Before this AI revolution, Rust Belt civic leaders were on defense as the collapse of the global office market hit their respective downtowns especially hard. Shaped by their industrial pasts, these cities face the challenge of population decline, older, outdated office buildings, limited residential conversion and outsized reliance on commercial property taxes. With 66% of downtown space dedicated to office use, Pittsburgh ranks fifth in the nation for office concentration. But their industrial legacies and natural resources (hydro in Buffalo, natural gas in Pittsburgh) and outsized research advantages (particularly in Pittsburgh), is a new competitive advantage that couldn’t come at a better time. To fully capitalize, unconventional partnerships with leaders capable of vacating “either/or” thinking is required. As Highmark’s CEO David Holmberg remarked at Governor Shapiro’s Downtown investment announcement — “right now, we are on offense.”
As an innovation strategy consultant for Rugby Realty, the largest private property owner in Downtown Pittsburgh—with assets like the historic Gulf Tower, Koppers and Frick Buildings—I’ve spent the past two years or so working with investors, developers and policy shapers to move forward practical and innovative solutions preventing these renowned structures from foreclosure. So goes Downtown’s bellwether building (literally), so goes Downtown.
LeftLane Development’s rendering of a reimagined Gulf Tower streetscape
Time continues to prove that all successes originate with identifying and understanding the problem - and then, perhaps most importantly, communicating it clearly. Only then can you rally collaborators toward a solution. Due to real optic, and perhaps political reasons, conventional city leaders didn’t talk much about real vacancy projections, especially when sub-leases were accounted for, or how dire downtown’s property tax loss could impact local budgets. Makes sense because this wouldn’t help brokers’ leasing efforts. As a result, Downtown Pittsburgh’s “real state” wasn’t honestly discussed, the “problem” - a looming fiscal cliff - not conditioned with policymakers. The interrelated inaction was deafening and my clients were increasingly becoming frustrated. It became clear that unconventional efforts were needed. Working with commercial office analysts, real estate attorneys, and local government leaders, I led the creation of a communication’s effort on “Downtown’s Fiscal Cliff”. It identified a grim reality: without intervention, 63% of Downtown Pittsburgh’s buildings could face foreclosure, jeopardizing the city’s financial stability. Currently, downtown properties contribute 23% of the city’s real estate revenue, and real estate taxes account for 20% of Pittsburgh’s operating budget. This effort led to City Councilman Bobby Wilson leading the introduction and passage of an enhanced Downtown tax abatement bill. His Chief of Staff, Mohammed Burny, was a quintessential doer in this effort. This was only one step in moving forward the Gulf Tower conversion, but it was a crucial step, and it built momentum.
Historic Downtown Investments Green Light Private Investments
In this precarious downtown economic climate, growth can only be achieved through smart, strategic investments that spur private dollars. Pennsylvania Governor Josh Shapiro and local corporate, civic, elected and economic leaders’ recent $62 million public-private Downtown investment announcement is a critical step in the direction of strategic action. As an insider, I know how many people from the corporate, philanthropy and civic communities stepped up. This, after all, is the Pittsburgh way. The Gulf Tower, for example, will receive $10 million from the state’s redevelopment capital assistance program, and along with the previously mentioned tax abatement, will spur $200M in private investment, create 300 union construction jobs and generate $37 million in local investment over the next decade through property, wage, hotel, and parking taxes. Without these public incentives, the city could have faced an immediate $3 million revenue loss in property tax alone. The Governor’s investment is a key reason why the project is green lighted. The Gulf Tower’s transformation into a luxury boutique hotel and mixed-use development has garnered national attention from outlets like Bloomberg and MarketWatch. This project stands to become one of the nation’s most prominent office-to-residential conversions.
As we celebrate these investments, we must also keep a clear focus on the road ahead, activating our unique strengths and resisting policies that will stifle growth. This includes bolstering engagement with developers - whose investors are city agnostic. Cities that impose significant affordability requirements, like Boston, have high population growth and investors can offset financial gaps with high rents. Unfortunately, this dynamic does not exist in Pittsburgh, where restrictive state laws cap tax abatements at 10 years—putting the city at a disadvantage compared to cities like Cleveland and Columbus, which offer 15-year abatements with little affordability mandates. The pandemic fundamentally altered traditional office space usage, with long-term shifts in work patterns leaving Rust Belt cities like Pittsburgh particularly exposed to economic challenges. These cities, already grappling with high office vacancy rates, now face the additional burden of disincentivizing investment, which could be detrimental to their recovery.
Even Pro-Housing Pittsburgh, a Democrat-leaning affordable housing advocacy group, is advocating for reforms that might seem counterintuitive—like speeding up the permitting process and eliminating inclusionary zoning requirements. According to well-researched studies cited by the group, inclusionary zoning—which mandates affordable housing in new developments—has been shown to be an ineffective tool for actually lowering housing costs. Instead, studies show that the best way to drive down housing prices is to increase the overall housing supply. Without balanced housing policies and the necessary public subsidies, Rust Belt cities and their Downtowns could fall further behind more competitive Sun Belt cities like Nashville, Austin, and Miami, which are aggressively attracting new investments by fostering business-friendly environments and focusing on rapid growth. To remain competitive, Pittsburgh must adopt policies that encourage rather than hinder development.
Toward this end, Governor Shapiro's announcement rightly reflects a balanced approach on investment - one that doesn’t just focus on office conversions—but includes historic funding efforts that seek to make downtown’s public spaces more vibrant and safe. Led by the Allegheny Conference on Community and Economic Development, the Governor also hinted that public space investments, while worthy, is just the beginning of enhanced efforts to transform Downtown.
Playing Big: Why Pittsburgh’s AI Economic Growth and Downtown’s Resurgence are Interlinked
Nvidia’s VP of Federal Anthony Robbins tells AI Horizons attendees why the $3 trillion+ company named Pittsburgh as their first ‘AI Tech Community’
As a longtime consultant with Walnut Capital, the developers behind Bakery Square, where investments align with Carnegie Mellon University’s AI spin-offs (the reason Google Pittsburgh exists), I see the immense potential of AI as a driver of economic revitalization along Pittsburgh’s AI Avenue and beyond into Downtown and Hazelwood Green. CMU, the world’s leading AI institution, creates an unmatched ecosystem of talent and innovation. The federal government, defense tech companies, start-ups and corporate behemoths all need CMU’s research and talent - and they need it now. Placemaking strategies that incentivize AI company growth and relocation could translate this palpable historical moment for Pittsburgh into real population and job growth.
I’m convinced that Pittsburgh’s positioning as a top three global AI hub, growth in AI jobs and a related thriving tech economy hold the key to downtown’s resurgence. Here are three key reasons why:
AI Will Transform Key Sectors: Pittsburgh has strong footholds in finance and healthcare, two industries that will be revolutionized by AI. Major employers like BNY, PNC, Highmark, and UPMC dominate downtown’s commercial real estate footprint. Their growth, driven by AI innovations fostered by proximity to CMU, positions them to expand their influence, possibly creating more spin-off job opportunities at and around their downtown headquarters.
Regional Growth Attracts Outside Investors: I’ve been in meetings with potential Gulf Tower investors who are unfamiliar with Pittsburgh. This revealed that outside investors are not just evaluating downtown—they’re analyzing the entire region’s AI-driven growth trajectory. The AI Horizons Summit brought in investors optimistic about the region’s future, making them more willing to invest in projects like downtown conversions that offer lower immediate returns but high long-term potential.
AI and Tech Conferences Fuel Economic Impact: As Pittsburgh’s tech sector grows, the opportunity to host multiple annual AI and tech-based conferences will create outsized economic benefits. These events could mostly be anchored downtown at the David L. Lawrence Convention Center, driving tourism and business spending. If we can actualize a four-star convention center hotel the return on investment will multiply, creating a lasting impact on the local economy.
Pittsburgh’s AI economy is not just a catalyst for innovation; it’s a blueprint for how cities with industrial pasts can build vibrant, resilient innovation corridors that position downtown economies for the future. Rustbelt cities also hold a “power advantage”, as I’ve written in Governing Magazine with urban policy expert Bruce Katz. Now is the time to think big, matching the city’s tech prowess with the strategic investments necessary to transform Pittsburgh into a national leader in the AI economy.
Thinking Big and Moving Forward
To sustain this positive momentum, Pittsburgh’s stakeholders must build on the momentum of Governor Shapiro’s downtown announcement, Nvidia’s tech city announcement and AI Horizons - thinking big. This includes coordinated actions that craft and push for competitive policies, such as: a tax abatement beyond 10-years; opportunity zones that attract AI companies; an increase in state historic tax credits; and, a low-interest investment vehicles to bridge downtown conversion funding gaps.
Now is the time to seize the moment, push for more growth incentives, and build on the foundation we have established. It will, above all, require honest conversations, immense collaboration and strategic communication. From community leaders to elected officials on both sides of the aisle, the “why now” AI moment will only materialize with broad understanding and buy-in. Pittsburgh’s resurgence depends on leveraging both its industrial legacy and its newfound position at the forefront of the AI revolution.
