In a recent article in the New York Times, the report described how corporate America is moving from suburban campuses back to urban markets, despite the higher cost of central business district office space. These moves are driven primarily by the need to attract younger (Millennial) workers who prefer the excitement and buzz of urban settings as well as the proximity to public transportation. General Electric exemplifies this trend. On August 22, the company is moving its executive staff from its sprawling campus in Fairfield, Connecticut to a multi building complex in Boston’s Fort Point area. The headquarters will house 800 employees, while other corporate functions will operate from current locations in Cincinnati, Norwalk, Ct. and Schenectady, NY. This disaggregated model is made possible by modern network technology which allows organizations to work seamlessly across both time and space.
Other companies adopting this strategy are McDonalds, moving from the suburbs to downtown, Chicago, Chemours (a spinoff from DuPont), who plans to remain in Wilmington’s urban core, andKraft Heinz which had 2,200 workers when housed in Northfield, IL, to 1,500 now after their move to downtown Chicago.
The higher cost in rental rates are typically offset by the reduction in over-all space, financial incentives offered by the local jurisdiction attracting the new high profile tenancy, and the benefits of recruiting high quality talent. Motorola reports that since moving to downtown Chicago from the suburbs they get four to five times the response when they post jobs downtown.
CRE executives are smart to consider a disaggregating strategy, not only for major headquarters offices but for other operations such as customer service centers, administrative operations, call centers, etc. I recall the move of a call center from a headquarters site in New Jersey to a standalone facility in Allentown, Pa. Not only did we save space, but we also tapped into a good labor market, and lower rental rates. All in all a much better financial result and recruitment effort.
It’s essential to utilize a robust lease admin system when planning a disaggregating strategy. The system will identify lease termination dates that will need to be aligned with a possible relocation; it will provide rental rates as a comparison to market rates in the targeted relocation market; and it will give quick access to those locations that make sense for a disaggregation strategy. It’s wise to engage a design consultant with the necessary programming skills to undertake an analysis of functions that can be split from the primary location without interrupting work flow or operations. Invariably management will be surprised by how many functions can operate remotely using network technology and collaboration applications. Once you complete this analysis you can then decide where to relocate the primary location and where to house the disaggregated operations and staff. In many cases these operations can be collocated with existing staff to leverage existing support staff and technical infrastructure.
I recall a few years ago, there were pundits who declared the death of the central business district, and the rise of “edge cities” and exurban campuses. Well, this prediction was clearly false. Companies have rediscovered the benefits of the urban core, and renewed a move back to down town. This trend will continue into the foreseeable future, and will bode well for urban redevelopment and renewal.