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Is Investment in an Urban Locale Right for Your Company?

Many cities are growing faster than their suburban counterparts, as companies mine their skilled work forces, affordable property, and financial inducements.

August 2012
Urban America is standing a little taller and a little prouder these days. Corporate decision-makers and site selectors are starting to return to the urban core, once the butt of jokes. These decisions are founded on street-smart business sense, not simply social consciousness.

Urban Facility Investment
Big businesses are locating in cities historically maligned or previously ignored by investors. Head-turning facility investment, job creation, and a renewed swagger previously reserved for well-to-do communities is emerging. Between 2009 and 2012, Mitsubishi Electric constructed a $200 million facility in Memphis; Progress Rail Manufacturing, a Caterpillar subsidiary, committed $50 million in Muncie, Indiana; Goodyear Tire put down $250 million in Topeka; and Panasonic brought its more than 1,000 corporate jobs to Newark.

What's more, businesses are leaving, yes leaving, the suburbs to enter these and other big cities. Quicken Loans moved its 1,700-employee headquarters from Livonia, Michigan, to downtown Detroit in August 2010.  Therapeutic Proteins vacated Deerfield, Illinois, in favor of downtown Chicago. Panasonic in Newark is a relocation from nearby Secaucus, N.J. In today's precarious, recession-lingering environment, one might see investing in the urban core as ill advised. There's no shortage of savvy corporate leaders who disagree.

Chiquita Brands, Capgemini, Citco Fund Services, and Mitsubishi Nuclear Energy Systems now call the city of Charlotte, N.C., home. Proximus Mobility and Health Lean Logistics are new to Atlanta's city limits, as are PETCO and Becton Dickinson to San Antonio, and Lyoness Management to Miami. They list work force talent, quality and vibrancy of downtown life, access to higher education, and transportation connectivity among the motivating factors.

Corporate investment is not confined to Sunbelt cities. Genesis Casket moved to downtown Indianapolis, touting the city's abundance of local talent and business-friendly culture. Similar rationale was cited when Signature HealthCARE chose Louisville, Kentucky, and the Mark Group selected Philadelphia's Navy Yard.

Are cities' greatest urban problems behind them? Hardly. Are corporate leaders now sold on the city as the right investment location? Only some. Does this investment overcome the loss or decline of small business? No. Could this be the making of an urban site selection revival? Just possibly. Something certainly is afoot.

Championing the Inner City
Urban planners and socialists have long espoused the virtues of the city as a place for investment. For eons, this fell on deaf ears as obstacles and barriers to entry were deemed insurmountable, especially with attractive suburban options so close. Why deal with urban risk when a higher, more secure return on investment could be had elsewhere? The overwhelming urge for social justice and equitable economic opportunity did resonate with some. But inner cities are littered with the carcasses of well-meaning establishments. An investment founded on anything other than sound business rationale rarely succeeds for long.

Through compelling evidence, urban experts stopped simply marketing cities as a place to do good, but as the right investment location. The retail and service sectors were the first frontier. Collective buying power in a condensed, underserved location began to resonate. Brand loyalty in the inner city offered real merit. The proven benefits of urban industry clusters further piqued investor interest. What started as casual observations, today are legitimate motivators for investment. For perhaps the first time, a U.S. President, Barack Obama, states, "Cities are not the problem, they are the solution."

Albeit compelling, these pronouncements did not replace the very real obstacles confronting urban investment and success. The way for desirable investment still had to be paved. Tapping urban markets and their labor required viable property from which to operate, supportive financial resources, navigable permitting and regulatory processes, and constant business nurturing. By virtue of sound public-private partnerships, creative financial tools, progressive land policy and development, and other barrier-breaking tactics, certain urban markets are slowly turning the corner.

These are indisputable facts, but many see them applicable only to retailers and other establishments dependent upon the local consumer marketplace. In reality, the same tactics used to entice and sustain retail and service investment are just as valuable in the larger corporate context. Although the message may differ, corporate investors are learning that urban investment is not simply admirable, it can also make bottom-line business sense.

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