Thursday, June 16th, 2011

Job Migration from the Suburbs to Downtown

I think a look at the numbers would show that employment in our metro areas continues to decentralize. Brookings has labeled this phenomenon “job sprawl.” Yet America’s downtowns, particularly for its most thriving tier one cities, aren’t done yet. In fact, we’re seeing intriguing evidence that for at least certain types of employment, the downtown is again coming back into favor.

In a story titled Corporate campuses in twilight, Crain’s Chicago Business examines how companies that once decamped from the Loop in order to built large, self-contained campuses in the far flung suburbs are now reconsidering their decision:

Like the disco ball, the regional shopping mall and the McMansion, the suburban corporate headquarters campus is losing its charm.

All reflect changes in the corporate mindset that spawned the campuses dotting outer suburbia. Empire-building CEOs from the 1970s through the 1990s craved not only cheap real estate but total control of their environments. They created self-contained corporate villages that cut off employees from outside influences.

As the 21st century enters its second decade, many companies are discovering the drawbacks of the isolation they sought. Hard-to-get-to headquarters limit the talent pool a company can draw on and feed a “not-invented-here” insularity that ignores major shifts in industries and markets.

Companies seeking to tap a broader talent pool and get into the flow of innovation are looking back to the urban core. Sara Lee is only the latest suburban company to seek a new headquarters in downtown Chicago. United Airlines made the move in the past decade, as did Navteq Corp. and Allscripts Healthcare Solutions Inc. Some of the most successful local companies of recent years, like Morningstar Inc. and Accretive Health Inc., never left the city.

“The whole corporate campus seems a little dated,” says Joe Mansueto, chairman and CEO of Morningstar, who moved the company’s 1,100 headquarters workers across the Loop to a new office tower at 22 W. Washington St. two years ago without even considering a move to the suburbs. “We’ve always liked being in Chicago. It helps keep employees on the pulse of what’s happening in our society. It keeps them current with cultural trends and possibly technological ones.”

There’s a lot more to the article which I encourage you to read. Subsequent to publication, United Airlines announced it was relocating another 1,500 jobs downtown without any subsidies. This is in addition to another 1,000 new GE Capital jobs recently announced, also without subsidy.

Part of this simply reflects what I previously labeled “the big city CBD advantage.” In these large, sprawling, congested regions with good transit access to the CBD from all parts of the region, being downtown gives you access to the greatest potential labor pool, which can be very important when sourcing for specialized skills. Others are attributing this to lifestyle preferences of younger workers. Whatever the case, businesses wouldn’t be choosing to relocate these workers without a good business reason. And in these cases subsidies aren’t the reason.

Chicago isn’t the only place this is happening, incidentally. The NYT wrote about who UBS is thinking about moving back from Stamford, CT to Manhattan.

I’m not going to suggest these anecdotes undercut the job sprawl narrative, but they show that employment markets and business location markets continue to evolve, and that there’s a lot of nuance under the headline numbers. We’ll see to what extent this is the start of a serious trend.

17 Comments
Topics: Demographic Analysis, Economic Development
Cities: Chicago, New York

17 Responses to “Job Migration from the Suburbs to Downtown”

  1. Dan Moore says:

    Not going to be the case everywhere, but at least in Indianapolis right now downtown office space is much cheaper than office parks outside the loop, even mediocre ones in odd locations. I worked for a company who made the move for cost reasons – it was much cheaper even when considering having to subsidize employee parking spots.

  2. Christy says:

    To add to your case studies – Rolls Royce to downtown Indainapolis. Don’t know if that involved subsidies, though.

  3. John Morris says:

    The answer to this puzzle seems easy–most American downtowns do not have a strong enough distinquishing urban character to provide real dense corporate ecosystems.

    Looks like New York and Chicago have enough critical mass–urban colleges, transit systems and very dense networks of small companies and service buinesses that add real value.

    In the case of most cities, the advantage is modest and getting worse as downtowns tear out density to create immitations of their suburbs. Pittsburgh looks like it has a real downtown-untill you see that 35% of the buildings are just parking garages.

    Other cities like Baltimore and Philly have bet the farm mostly on tourists.

  4. John Morris says:

    In the case of NYC, recent developments indicate some relocation, reflects the urban living choices of employees.

    Conde Nast will be getting a big incentive deal-but is chosing to move out of Midtown, which is best supported by commuter rail lines to Long Island and Westchester, in favor of a Lower Manhattan location that is well located in relation to Tribeca, West Village, SOHO, Chelsea, The Upper West Side, Brooklyn and The New Jersey Waterfront.

    If a large chunk of their employees were suburban, this would be very unpopular.

  5. Dean Simmer says:

    This has also been the case here in Detroit, as large employers such as Quicken Loans (and its family of companies) and Blue Cross Blue Shield have relocated from suburban campuses. In the QL case, owner Dan Gilbert has been buying towers in the CBD to strengthen and grow the current commercial space and he has enticed multiple other employers to follow suit. I suspect that things like travel costs in a city that lacks solid public transit has something to do with it, in addition to the general pro-Detroit attitude in the younger generations in Southeast Michigan.

  6. John Morris says:

    One interesting thing happening in New York is large headquaters opening in places without great transit access or parking.

    I mean–The High Line, far West Side area area is booming. It’s obviously not far from great 8th Ave Subway lines, but my guess is the average worker at Martha Stewart Living or Interactive Corp will be walking 6 blocks or more.

    Till recently, I think it was pretty much written in stone that people just won’t walk at all and need to be within 3 blocks of either transit or a lot of parking.

  7. david vartanoff says:

    While I would be pleased if this trend snowballed, I am not convinced. Where I live Twitter extorted concessionary tax deals to be in SF while Apple announced anew doughnut in Cupertino.

  8. John Morris says:

    I would think in San Francisco the total available office space in the city is pretty limited. There are lots of restrictions on building, historic districts and height limits in a city that doesn’t have many places to build.

    In a few cities, NIMBY anti growth issues are a big factor. Remember that many areas of NYC were until very recently zoned tightly for only manufacturing. One can’t make development illegal and then complain there is no demand.

    Restrictions on growth in NYC are still a very big problem.

    Not an expert on San Francisco.

  9. the urban politician says:

    For Chicago, must be the “Rahm” factor.

    Just a day or two ago, Motorola announced they will move 400 jobs downtown.

  10. George Mattei says:

    Stamford is actually not quite a far-flung suburb. It’s a small satellite city of its own right that was swallowed up by the NY metro area. However, it has a fairly intact, if small, urban grid, hi-rises and great rail access to New York. You can get out of your building, walk down the street and get lunch or a cup of coffee, just like in other real cities.

    While some of the reasons for UBSmoving are the same, I would not put Stamford in the same boat as a true “suburb”. It’s not an office-park environment.

  11. George Mattei says:

    My question is-where does this put smaller cities? Indy may have cheaper downtown office space, but I don’t think that’s the case in Columbus and most other cities that aren’t Chicago. I’m pretty sure Columbus’ downtown rents are pretty comparable to suburban locations. Plus, Columbus’ lack of traffic congestion and relative lack of public transit means that there are far fewer reasons to move downtown at this time.

    In the short term, my guess is that these type cities have to try to do what they can with the trends, because I don’t see the economics making it a better choice than the ‘burbs. Maybe not as bad a choice as it used to be, but not the same impetus that a Chicago might have.

  12. John Morris says:

    Have literally have never been in Stamford except in a car or passing by on a train.

    My impression is of a city that is sort of neither here nor there– Trying to become more urban-but seriously damaged by I-95.

    Most of the high rises, have multi floor parking on the bottom level and many are not in a normal block pattern. The UBS building itself is of a superblock type that would break the street grid and create the kind of boring streetscape that would discourage walking. If UBS pulls out, it’s large trading floor will be white elephant not easily used for something else.

    In the case of Stamford and many of the smaller cities around, NY my advice is to focus on the relationship with the city itself which is as it becomes more sucessfull and expensive will create more chances for spin off urbanism and reverse commuting.

    Right now, too many of NYC’s smaller cities are torn between orienting themselves toward Urban NYC and their surrounding suburbs.

  13. John Morris says:

    What I’m trying to say is that cities like Stamford-can’t really say people are not interested in their small city/ urban type product because they are not really offering that.

    What you get if you work or live in a city like Stamford is a few blocks of semi urbanism, a few historic buildings and then a bunch of other stuff that is very sub-par–office buildings with about half the building is a garage, superblocks and major gaps caused by highways. Does anyone really walk under I-95 in Stamford?

    Seems the same with Newark. They can’t say there is no demand for urban product-it’s just that they are offering a confused, substandard mix few people with real choices want.

  14. Alon Levy says:

    Newark is still a secondary downtown, while Stamford is an edge city. Stamford has a core that’s urban, but most of its development is postwar: see this chart of historic city populations. In the same period that Stamford’s population doubled, Newark’s has been cut by half.

    In addition, Stamford’s context is suburban: Fairfield County has more employed residents than jobs (at least if you count by income – I’m not completely sure it’s true if you count people), which is not true of Essex County. The jobs in Fairfield County come from corporate headquarters that decided to move away from the city or toward the suburbs where the executives lived; those in Newark are a holdover from when Newark was a major city in its own right.

  15. John Morris says:

    I sort of know that. I mention Newark because it’s located and connected by decent transit to a place (NYC) with such an obviously strong demand for urban living–yet still has yet to tap into that demand.

    Your take on Stamford is correct and there’s a clear conflict going on between creating a real transit oriented small city or just using the central area as a park and ride lot for commuters.

  16. Wad says:

    John Morris wrote:

    I would think in San Francisco the total available office space in the city is pretty limited. There are lots of restrictions on building, historic districts and height limits in a city that doesn’t have many places to build.

    To call San Francisco expensive is a gross oversimplification. San Francisco has different flavors of expensive.

    Commercial space in, say, the Tenderloin (SF’s Skid Row) is just obscenely expensive. Go toward the water on Market Street, you end at the Financial District. Here, or the Embarcadero Center complex, you need computing power to calculate the digits that will show up on your lease bill.

    Most of San Francisco is very neighborhood-oriented, where you have the workings of a real city. You have your typical retail, food service and unskilled and semiskilled work just like any other city.

    San Francisco’s tech district is heavily clustered in the South of Market area, a former maritime industrial area that was redeveloped with AT&T Park as the centerpiece. Coincidentally, this is also the terminus for Caltrain, the commuter rail line that connects San Francisco with Silicon Valley and San Jose.

  17. John Morris says:

    Whatever. A slight visual examination of the city tells you it doesn’t have the space for all the offices in Silicon Valley in the city itself. San Francisco’s “neighborhood character is largely the product of geography, by which I mean there are some pretty limited places one could have the large scale-open floor plan offices these large companies want.

    Likewise, one can’t describe development on the Brooklyn, Queens or Jersey waterfront as sprawl. It’s biggest driving factor is just huge demand.

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