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The Reasons Corporate Headquarters are Heading Back Downtown

In order to lure tech-savvy millennials, many companies that years ago moved out to the suburbs are heading back to the urban downtowns that offer the lifestyle this generation of employees desires. And the trend isn't confined to just North America’s biggest cities.

Q3 2016
The digitization of business has been flipping the economy on its head, and here’s one of the latest topsy-turvy developments: Downtowns are, relatively suddenly, landing corporate headquarters and expansions again. That’s because company chieftains now must lure the tech-savvy millennials who are more attracted to downtown working and living than any generation in the last century.

Every few weeks brings news of a major American corporation turning its back on a headquarters location in a leafy suburb and deciding to plant — or re-plant — its increasingly digital brain trust downtown. Free from the cost and logistics burdens of having to put a traditional manufacturing plant in the central city, they’re joining rosters of software startups that have ensconced themselves in downtown locales as they began to create tech-centered ecosystems. The trend represents a stunning reversal from the post-World War II period during which major American corporations —almost en masse — decamped from their historic urban locations for low-slung new headquarters outside of town.

These new moves to establish downtown digital operations hubs include high-profile gambits by Fortune 500 companies such as General Electric, McDonald’s, Weyerhaeuser, the recently spun off Chemours division of DuPont, and the Cadillac division of General Motors. But some mid-market companies are doing the same thing.

And the downtowns involved aren’t just those in North America’s biggest cities. Economic development interests in urban centers of various sizes across the United States and Canada have a golden opportunity to remake themselves to succeed in the new technological era.

Part of it is that cities are more attractive places to live than they were 30 years ago and are more willing to provide tax incentives, and young people want to be there,” David J. Collis, a professor of corporate strategy at Harvard Business School, told The New York Times. The trend represents a stunning reversal from the post-World War II period during which major American corporations —almost en masse — decamped from their historic urban locations for low-slung new headquarters outside of town.

No doubt this phenomenon, in turn, has become a major driver of a documented overall renaissance in the core business districts of several major Northeast and Midwest post-industrial cities as well as a contributor to the vitality of many newer economies in the Sun Belt.

For example, Albuquerque and Santa Fe, New Mexico, are in the midst of a push to revitalize and fill out their downtowns, and a centerpiece of the effort is to entice and encourage corporate investment in city-core operations that can employ many members of the state’s considerable digital workforce.

“We’ve got one of the largest concentrations of Ph.Ds. per capita in the country,” New Mexico Governor Susana Martinez told Area Development. “Developing that asset is a cornerstone of our efforts to grow and diversify the economy, and our downtown initiatives account for one of the best ways to do that.”

“The Sea of Ideas”
While the trend has been incipient for a while, it was GE that put a headline on it when the 124-year-old industrial and technology icon stunned the status quo by announcing earlier this year that it is transferring its corporate headquarters — and a few thousand jobs — to downtown Boston from its leafy suburban Connecticut home in Fairfield.

GE was pushing the state for tax cuts regarding the 68 arboreal acres the company had occupied since 1974. But the real reason for the move was that the company requires better access and appeal to thousands of young digital mavens, as CEO Jeffrey Immelt accelerates his plans to transform the company from a heavy-manufacturing behemoth to a software-driven technology giant of the future. And there was no better place to find these workers than downtown Boston. Companies must lure the Tech-Savvy millennials who are more attracted to downtown working and living than any generation in the last century.

“I want to be in the sea of ideas so paranoia reigns supreme,” Immelt said when explaining GE’s motives to Boston’s business leaders earlier this year. “To look out the window and see deer running across …I don’t care about that.”

So GE accepted as much as $25 million in property-tax relief from Boston as well as up to $120 million in infrastructure grants and $5 million for an innovation center from the state of Massachusetts. GE itself plans to spend up to $100 million for the new headquarters, including land-acquisition costs, where it plans to employ about 800 people when it opens in 2018, in addition to the 5,000 people GE already employs in Massachusetts.

And as Immelt promised his new friends in Boston, “I don’t think this is the last investment that we make, either in Boston or in [Massachusetts]. I think once we get up and going, there will be more things that happen here.”

World-Class Environments
In June, McDonald’s pulled its own stunner by announcing that it will move its headquarters from suburban Oak Brook, Illinois, to the trendy West Loop neighborhood of downtown Chicago by 2018. After “growing up” downtown between 1955 and 1971, McDonald’s had bolted for the suburbs in 1971 and never looked back — until disruption by forces ranging from digital technology to healthier-eating consumers overturned its business model and forced the fast-food leader to re-evaluate everything.

After all, new digital applications arguably are as important in McDonald’s new competitive arena as new better-for-you menu items. In just the last several months, McDonald’s has made software-based moves including accelerating development of its Create Your Taste food-customization program, installing Samsung Galaxy tablets in its restaurants across the UK, experimenting with Happy Meal boxes in Sweden that could be converted into cardboard virtual-reality headsets, and launching mobile-payment systems.

“This world-class environment [in downtown Chicago] will continue to drive business momentum by getting us even closer to customers, encouraging innovation, and ensuring great talent is excited about where they work,” McDonald’s CEO Steve Easterbrook said in explaining McDonald’s plans. These new moves to establish downtown digital operations hubs include high-profile gambits by Fortune 500 companies such as General Electric, McDonald’s, Weyerhaeuser, the recently spun off Chemours division of DuPont, and the Cadillac division of General Motors.

For similar reasons, Weyerhaeuser, the paper giant, recently sold its exurban-Seattle corporate campus along Interstate 5, covering 425 acres and nearly 811,000 square feet of office, lab, and industrial space, for about $70 million. Weyerhaeuser had moved from Tacoma to the sprawling new campus in 1971. It sold the complex so the company — one of the Pacific Northwest’s oldest — could move into a new building in downtown Seattle this summer, two years after announcing the move.

Companies are migrating to the city because they perceive the need to attract talent,” Stuart Lichter, president of IRG, the Los Angeles-based institutional investor that specializes in revitalizing old corporate campuses, told The Seattle Times. But, Lichter noted, “The dichotomy between what you can lease a suburban building and downtown building for has never been this wide.”

Staying Downtown
When the newly merged DuPont and Dow Chemical decided to split up their joint operations in new ways, the emergent company spun off Chemours as an industrial-chemical subsidiary, and there was broad speculation in Delaware that it would follow DuPont to the suburbs. But Chemours announced that, instead, it’s staying in Wilmington, most likely in the century-old headquarters it inherited form DuPont after the spinoff.

The decision was facilitated by the state’s decision to offer a $7.9 million package of grants, as well as the state’s move to overhaul its corporate tax code to sacrifice revenue, making it easier for Chemours to decide to stay put.

“We are going through a change in our workforce, and we wanted to be where we could attract millennials,” Mark Vergnano, Chemours CEO, told The New York Times. “This is a group that likes to be in an urban setting, with access to public transportation. They don’t want to be confined to a building with a cafeteria or be next door to a shopping center.”

Changing a Company’s Image
Cadillac’s move into spacious new quarters in Manhattan has been a bit different than the other companies’ moves because it switched cities to do so. Two years ago, the new brain trust of GM’s luxury brand determined that the only way to reverse the slide in perceptions of Cadillac vis-à-vis the German competition was to make a physical break with the traditional, stodgy approach represented by the automotive behemoth and its beehive assemblage of personnel in Renaissance Center, a relatively isolated cement citadel on the riverfront in downtown Detroit.

So Cadillac CEO Johan Nysschen got to set up a new headquarters, along with sales and marketing, human resources, and some other functions in one of the trendiest locales in the world — New York City — where it could recruit millennials who not only live but also understand the chic urban sensibilities and luxury-lifestyle brands that Cadillac wanted to use to reshape the brand. The jury remains out on whether this is the tonic that Cadillac needed to transform its brand, because the company is still overhauling its product lineup. But Cadillac executives believe they have achieved the initial objective of recruiting the kind of digitally savvy and culturally progressive workforce that they wanted.

Cities Reaping Benefits
Not every city is getting the dramatic invasion of a marquee corporate headquarters. Some have been assembling smaller hauls of digitally needy employers offering jobs in the dozens or hundreds and, collectively, nudging the downtown in the same direction.

In Toronto, for instance, Google and some other flagship digital companies employ hundreds of madly typing millennials. Montreal’s downtown has become something of a paradise for video-game companies, thanks to the massive gaming specialty of Concordia University.

And in Albuquerque, N.M., an initiative called Innovate ABQ is a hub for research and innovation activities and programs throughout the region. Founded on the grounds of a seven-acre former Baptist church, Innovate ABQ “is a city- and state-driven initiative, along with the University of New Mexico, to establish incubators and centers of entrepreneurship in the downtown corridor” of the state’s largest city, Governor Martinez notes.

The state is chock full of knowledge workers thanks in part to the presence of federal research centers such as the Los Alamos National Research Laboratory, so the idea for Innovate ABQ is to create “an integrated work, live, and play community for the state that is multi-dimensional” and snags those home-grown knowledge workers, among others. Martinez also spearheaded creation of a bipartisan “jobs package” designed to recruit new businesses to the state, which included new tax credits for tech companies that reward home-grown innovations.

“We start out with a lot of tech jobs,” Gov. Martinez says. The new downtown programs “are a way to diversify our economy so that we solidify and expand our base of knowledge workers and accelerate the growth of our digital economy even more.”
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