Call it the Golden Arches Rush.
In the past several years, a handful of America’s largest corporations have joined an exodus from their suburban headquarters to new home bases in the city, and millennials seem to be the driving force.
In August, General Electric announced it was ditching Fairfield, Connecticut, for Boston. Several years ago, Swiss banking giant UBS returned to New York City after 15 years in Stamford, Connecticut. The reason? UBS realised much of its top talent lived 35 miles south, in Manhattan.
The state of suburban office parks
The traditional office park — a cluster of drab, nondescript buildings encircled by vast parking lots and highways — is dying. Given millennials’ penchant for walking and fast-casual restaurants, a number of American companies are either rebuilding their suburban office parks to mimic an urban environment or uprooting for the city.
“Companies want to move to areas where millennials are located,” Robert Bach, director of research at the real-estate advisory firm Newmark Grubb Knight Frank, tells Business Insider.
In 2015, Bach’s firm published a report on the state of office parks around the US. It concluded that between 14% and 22% of the “suburban inventory” in the country faced a degree of risk in becoming obsolete. Some parks needed only a cosmetic changes, while those beyond help were suited for rebuilds.
The report found that two main factors could predict that level of obsolescence: proximity to mass transit and access to amenities like lunch and shopping. Bach says it’s no coincidence that fitness-focused and food-savvy millennials share those preferences.
A millennial-driven migration
Millennials are driving these changes because there are 75 million of them. People between 20 and 36 years old outnumber every other generation in the US, and businesses either want to hire them or sell to them (often both).
In 2011, as UBS pondered a move back to New York City from Stamford, traders indicated just how inconvenient the suburbs had become. “It’s annoying,” one trader told The New York Times. “I live pretty close to Grand Central, so it’s not a terrible commute. But it’s not ideal.”
Crime has dropped dramatically in a number of cities, and that has also encouraged people to move back in. Many of those new city dwellers are young, wealthy, and childless. Older millennials, meanwhile, have continued to flock to the suburbs, as new parents have for years.
The influence that millennials wield is so great that the power has shifted into the hands of employees.
“It used to be businesses determining where people worked,” Bach says. Companies would build a sprawling campus in the suburbs and thousands of people would flock there to buy homes. Today, in many cases the roles are reversed.
“The competition for talent is quite strong now, and part of it is the baby-boom generation is retiring,” Bach adds. “Companies have become more global, and they need to hire more people to have advantages all over the world.”
Life in the most extreme cases
In certain cases, the trend has left the traditional office park hollowed out. Buildings that were once symbols of economic might now sit grime-covered and empty on the side of highways.
Even in places where businesses have lived for decades — “company towns” — residents fear the implication of more symbolic shifts in headquarters.
In Peoria, Illinois, the manufacturing giant Caterpillar has been a mainstay for 107 years. In early February, the company announced it would relocate its executive office closer to Chicago. More than 12,000 people will stay in Peoria, but already some residents fear it could signal something more dire.
“We need to face the reality that decision-making is leaving Peoria while hoping this is not the beginning of a steady bleed,” read a recent editorial with the headline “Caterpillar move means a somber day in Peoria.”
But not all suburban office parks are withering away, Bach adds. Over the past decade, vacancy rates in some of America’s largest markets, many of them in the Sun Belt states, have fallen to record lows. According to NGKF, vacancy rates have fallen from a high of 19% in 2010 to a 10-year low of 14%.
What’s really changing are employee demands, the NGKF found. Older millennials want footpaths, bike paths, restaurants, and easy access to public transit. They want the same things as their younger, city-dwelling cohorts, but with a touch more green and slightly better public schools.
As a result, building owners have entered into a dilemma: Behave more like an office in the city or risk your tenants making a home someplace else.
‘White flight’ beginnings
The power that millennials have over corporations is significant, but it isn’t new.
Sixty years ago, when the first suburban office park emerged, in Mountain Brook, Alabama, the rationale was far more political, and at times racist, rather than a desire for more taco joints.
In the 1950s, as civil-rights protests were reaching their peak, many white city dwellers fled to the suburbs, and they brought their employers with them. Either out of fear or bigotry, businesses catered to their employees and built buildings far from Birmingham’s civic unrest.
As this white flight took hold, gradually the idea of a cosy, grass-rimmed business park spread east to Georgia and, eventually, all the way up the East Coast to New England. By the 1980s, office parks had joined farms and factories as icons of American labour. Their expansiveness and high level of security signalled companies’ power. Employees were happy to avoid travelling to jobs in cities that they viewed, with varying degrees of correctness, as unsafe.
“At night the streets would be empty,” Bach says. “People had a perception that downtowns were high crime.”
City officials spent a great deal of the 1980s working to change that perception. “And they tried a number of different things,” Bach says. They experimented with malls, which ended up not being very successful. They also built convention centres and subsidized the cost of opening new hotels.
“What we’re seeing now,” Bach says, “is really the culmination of decades of work by city planners that has come together with a cultural preference for living downtown.”
Looking to the future
Millennial bargaining power won’t last forever. Census data suggests Generation Z — people born in the early 2000s — will eventually eclipse millennials in total size. By the time they have graduated from college in the mid- to late-2020s, the power dynamic between employees and employers, at least in terms of where people live, could be different.
In the meantime, developers still have to decide if their buildings align with what employees are asking for, and doubly so as the desire for certain elements of the “urban experience” have bled into the suburbs. If businesses choose not to adapt to those changing preferences, as NGKF’s research suggests they should, it shouldn’t come as a surprise if tenants begin to jump ship.
“The cities that have strong downtowns and are successful in attracting corporate relocations and millennials to live nearby” will have an unquestionable edge, Bach says. “In those metropolitan areas, the suburban campus will be less successful.”
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