Trendspotting: Corporate HQ Location Choices in a Recovering Market
Pent-up demand will result in more headquarters projects in the next decade, but these modern, right-sized workspaces will differ in size and design from those of the past.
Eric Stavriotis, Senior Vice President, CBRE, Inc. and Chris Schastok, Vice President, Economic Incentives Group (EIG), CBRE, Inc. (April 2012)
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Analysis: Overall Outlook for HQ Activity
- Smaller, often more urban HQs and Centers of Excellence. Because Class A space in Tier One markets is expensive, some companies are rethinking the composition of their corporate headquarters and the employees typically located there. This assessment is playing out in two primary ways. First, some companies have decided to move their HQ operations to a new location along with a smaller number of employees, with the balance of the HQ work force being located in a lower-cost location.
A second approach involves strategically choosing which divisions will most benefit from an urban location; sometimes that means moving the official HQ, but more often, it means creating a "Center of Excellence" in an urban location, typically a function populated with a younger employee demographic. For example, a large technology company is moving 100 systems integration employees from its suburban campus to a nearby urban center. The new location will be located near transit and will allow access to new talent, while the company's top senior executives and its official headquarters remain on the suburban campus.
- Operational cost reduction. Sound counterintuitive? Wouldn't corporations interested in keeping costs under control stay in their current facilities? That depends on how you look at cost reduction. In terms of real estate one-time costs, new facilities might sound expensive. But operationally, smaller urban campuses are many times less expensive.
This desire to control costs often means bifurcating operations, a trend we have seen grow. Previously in large campus environments, all business units were co-located, but now companies are often moving secondary functions to lower-cost locations. Such strategies also offer companies the ability to "plug in" in different cities or sub-markets, diversifying their ability to attract and retain talent.
In the 2011 Area Development Corporate Survey, 25 percent of respondents stated that the sluggish economy had forced them to put expansion on hold. However, when the U.S. economy improves, the high-performing companies that are acting today will gain advantages over their peers, especially in the race to attract and retain talent.
According to PwC's 14th Annual Global CEO Survey, innovation "has gained prominence among global chief executives' strategic priorities as a means of boosting revenues and reducing costs." Additionally, CEOs said they are "just as likely to focus on innovation to achieve growth as on exploiting existing markets," signaling innovation in the workplace driving productivity and attracting talent.
We expect to see more HQ projects in the next decade due to pent-up demand. But these modern, right-sized workspaces will be significantly different in size and design, when compared to their 1980s predecessors.
noun:the location where central business decisions are made; the top tier of the corporate structure that takes responsibility for the success of organizational strategy and governance. - Business School Definition
noun: the most sought after of all project types, capturing headlines, anchoring trophy real estate projects, and often garnering hefty incentive awards. Compared to manufacturing, R&D, or data centers, headquarters are major mile markers for the economic development efforts of states, cities, and towns. - The "Real World" of Corporate Site Selection