Reverse sprawl? Cities lure back suburban stars

Cities. Remember when they were all emptying out years ago? Big employers were fleeing to the suburbs to escape crime, taxes, congestion, pollution, you name it. Employees and their families were leaving, too. It was a full-on urban exodus.

Well, now, that worm has turned.

Today, millennials everywhere want to live downtown, and more and more businesses are following suit, in hopes of recruiting more prospective labor to meet expected worker shortages. This is especially true in talent-rich metropolises like Boston MA, which teems with highly educated youth.

“Greater Boston is home to 55 colleges and universities,” said GE CEO Jeffrey Immelt, explaining earlier this year why the multinational power broker had opted to leave its suburban headquarters in Fairfield CT for the vitality of Southeast Boston’s Seaport District. “Massachusetts spends more on research and development than any region in the world, and Boston attracts a diverse, technologically fluent workforce,” he added. “We want to be at the center of an ecosystem that shares our aspirations.”

GE’s move also yielded immediate dividends for the city. Less than two weeks after the announcement, the firm’s philanthropic foundation said it would give $50 million to support Boston schools, job training and health care. “One half of the commitment — $25 million — will go to the city’s public high schools for career planning and computer science, $15 million to community health care in areas that need greater capacity for medical care, and $10 million to increase the diversity in the workforce for jobs of the future,” said the GE Foundation statement.

Boston also has attracted other suburban employers from in-state, as well, including international software firm Acquia and sporting goods maker Converse, now a subsidiary of Nike.

Boston isn’t alone, says Joshua Drucker, professor of urban planning with University of Illinois-Chicago. Heavy hitters in other regions also are leaving the suburbs for urban environs. For example, online travel company Expedia Inc. is defecting from Bellevue, WA., to Seattle, where Amazon is also due to open a new campus now after relocating there in 2010. Meantime, Detroit is scooping up Fifth Third Bank, Blue-Cross Blue Shield of Michigan, and ad agency Lowe Campbell Ewald, Drucker notes.

“We want to be at the center of an ecosystem
that shares our aspirations”

“It’s also happening in so-called secondary markets such as St. Louis and Cincinnati,” Drucker said. In all, the trend is upending or spawning millions upon millions of square footage, as companies either construct new headquarters in downtown locations or renovate existing facilities to meet their needs.

Just this week in Chicago, demolition crews are leveling the former site of Harpo Studios, longtime home to The Oprah Winfrey Show. An even bigger name is moving in. In June, fast-food giant McDonald’s Corp. announced that it will leave behind its wooded campus headquarters in suburban Oak Brook, IL, and move 2,000 employees to newly constructed, Gensler-designed digs in the city’s trendy West Loop.

 

The McDonald’s move marks just the latest in a succession of corporate relocations to downtown Chicago, following on the heels of similar decisions by Boeing Co., Motorola Solutions, Kraft Heinz, Archer Daniels Midland, United Airlines and ConAgra, all former “reverse commuters”.

Millennial ripple effects

The chief driver? Access to educated, enterprising and tech-savvy millennials, who tend to be dwell in urban settings. As Andy Davidson, EVP at MB Real Estate puts it, “College graduates today would rather tend bar (downtown), honestly, than than go work for a corporation in the ‘burbs.”

Census data confirm that millennials, about 77 million Americans born between 1980 and 2000, prefer living where they enjoy easy access to shopping, dining, entertainment and work. A 2014 report by Nielsen indicated that growth in U.S. cities outstripped growth outside them for the first time since 1924, largely the result of growing numbers of millennials who populate them.

“Millennials quickly are taking over the nation’s downtowns and have demonstrated a pronounced preference for urban areas,” said Anirban Basu, chief economist for the national Associated Builders and Contractors trade group, as well as Procore Technologies. As a result, they have attracted bio-tech to San Diego, computing to Austin TX, and software to Raleigh-Durham NC, he added.

Meantime, the younger night owls also have also spurred a multi-family building boom nationwide in order to house them all, creating livelier and larger, 24/7 cities. Downtown Seattle currently has 65 major projects under construction, about two-thirds of them residential, according to the Downtown Seattle Association. Once projects come on line, Seattle will have achieved a 44% increase in housing stock, an indication “people want to live close to where they work,” now that enterprises such Facebook and Google are expanding their presence in the city.

Migration to urban meccas brings full circle the reverse trend begun in the 1970s, when many firms relocated from downtowns to suburbs. In Chicago, that movement culminated most famously in 1989 when Sears, Roebuck & Co. vacated its namesake tower, then the world’s tallest building, for a leafy campus in Hoffman Estates IL. Such relocations were intended to consolidate operations in sometimes scenic settings intended to enhance communications while placing employees in nearer to their suburban homes. The moves also put some firms in closer proximity to manufacturing arms.

“Many of these companies envisioned Elysian Fields, with easy access to recreation and shopping,” said Donald Haider, a professor at Northwestern University’s Kellogg Graduate Institute and former budget director with the City of Chicago. “Instead, some of them found themselves 20 or 30 miles from the Wisconsin border, and bored as hell.”

Returning to the community

Looking past many cities’ current fiscal woes and headline-grabbing crime, “companies are taking a long view over the next 20 years and looking beyond current conditions they regard as temporary,” Haider added. That long view not only involves tapping into a desired employee base, but locating them in environments conducive to collaboration, innovation and a sense of enthusiasm.

Companies also benefit from greater economies than cities previously afforded, given that the average square footage requirements per employee have dropped dramatically now that more employees work remotely, observed Wes LeBlanc, director and senior associate with San Francisco-based architect Gensler. The firm’s Chicago office is the designer of both McDonald’s new nine-story HQ and Motorola Mobility’s full-floor build-out at the downtown Merchandise Mart. “They also are less autonomous, meaning you don’t have to fit business centers, cafeterias, and other amenities in them, as you would with a suburban campus,” he said. In other words, the facilities don’t have to be as self-sufficient.

“You get a more condensed and modern headquarters, as I suspect was the goal with McDonald’s,” says R.J. Hottovy, analyst with investment research firm Morningstar Inc. “And since tech-savvy millennials are relatively young, they tend to be available at lower pay rates. I would suspect those are some of factors driving many relocations.”

And as so much evidence now indicates, those trends are far from over.