My latest post is online over at New Geography and is called “The Rise of the Executive Headquarters” in which I take another look at the emerging trend of putting the top executives of majors corporations back in global cities (often downtowns). Here’s an excerpt:
Headquarters were once a defining characteristic of urban economic power, and indeed today cities that can still brag of the number of entries they boast on the Fortune 500 list of largest American firms. Yet as urban centers increasingly lost headquarters, boosters started to downplay them as a metric, particularly with the rise of the so-called “global city” concept. Today the HQ is back into the urban mix, but increasingly as what I would call the “executive headquarters” which brings bragging rights to a city but not much in terms of middle class jobs.
By the way, Tom Wolfe’s description of the CEO’s dining options now seems positively quaint little more than a decade later in an era of molecular gastronomy and such. But he nailed called it in advance: people in global cities like to do lunch.
The New York Times recently ran a piece on how upscale suburbs around New York are seeing an exodus of the young. This is similar to what we’ve seen with corporations, such as Connecticut turning into a suburban corporate wasteland.
I see this as part of the bifurcation trend:
The executive headquarters is one more example of the increasing bifurcation of America’s elite cities. A handful of top executives gather in America’s capitals of capitalism while the good paying core of the old headquarters — including many upper middle class positions — remain in more workaday cities. This but one example of the “growth without growth” model in which cities dispense with “old fashioned” notions like population and job growth in favor of higher per capita GDP and income in which parts of cities thrive by becoming downtown versions of the exclusive gated subdivision.
In this world global city centers like Manhattan, London, Chicago’s Loop, San Francisco will boom as the suck in the highest value functions in pursuit of a quality over quantity “vertical” strategy. Meanwhile cities like Salt Lake City (home to 1,600 Goldman Sachs employees) and Austin (with a massive Apple presence) are focusing on more middle and lower-tier growth in a more “horizontal” model without much in the way of standard of living gains. Austin’s per capita income actually dropped from 108.1% of the US average in 2000 to 98.1% in 2012. The recent announcement of ADMs move of about 100 top executives from Decatur, IL to Chicago fits in with this.
I think what these trends show is that the suburban areas around major global cities may end up being the odd man out. Places like Connecticut, New Jersey, etc. They are very expensive and have crushing taxes and regulations, but without the compensating advantages of Manhattan. I’m sure places like Westchester County will continue to have their appeal for the wealthy middle-aged types, but if you’re a business or a young person starting your career, moving either to the city or to a place like Nashville is a much better option than sticking around in a place with just about the nation’s highest property taxes.
The other set of losers are in downtowns in second and third tier cities. These are often seeing a lot of investment in residential and entertainment/tourism type items, but private sector employment is in decline in them pretty much everywhere I look. The tech sector gets a lot of hype, but it’s the exception that proves the rule.
If a suburban environment is what you want, places like Carmel, IN; Dublin, OH; and Franklin/Brentwood, TN offer unbeatable value for the money. For an urban environment, the DCs, New Yorks, and Chicagos have you covered. Places not falling into those categories have it tougher.
Overall I agree with you, but with a couple caveats. Global city centers will suck up HQs and lead to the demise of most suburban office campuses. But I see suburban office campuses that have a relatively strong transit connection to the global city center, like the Chicago area’s I-88 corridor, holding on a little longer than most and faring a little better than most. Especially if they invest in their transit stations and create real TOD town centers. I think that’s the emerging suburban dynamic around global cities.
Suburbs around second and third-tier cities, however, I see as the big losers. If the back-to-the-city movement filters down to the Nashvilles of the nation, why choose Franklin/Brentwood when there are no transit options?
Some of these corporate HQ staffs are very small. I think Alcoa employs about 65 people in NYC, max.
I absolutely agree that in most cases, the very expensive top tier metro suburbs are really vulnerable.
Cities like Columbus & Charlotte are not really competing against Manhattan, as New Jersey & Connecticut.
Transit connected suburbs in general should be OK, especially if they have a true downtown – examples in North Jersey would include Summit, Morristown, Montclair, South Orange, Westfield. These places can give an “urban feel” with restaurants and shops downtown, and a train to the city. Naperville, Evanston and Park Ridge might be Chicago examples, though Pete and others can speak with much more authority than me on Chicago.
As far as the office parks though, they may have a problem continuing as office parks of the 1960’s – 1990’s model. They only good thing is they can often be sold as a single large piece of land to a developer for some other type of development (like, perhaps, a New Urbanist “town center” type deal) that may be viable going forward, unlike an old housing development which is often owned by many people.
The first two office buildings I worked in – the seven building RCA complex on Rte 38 in Cherry Hill NJ (suburban, with a big grassy front yard), and the more modest GE building on Watt St. in Schenectady NY (on the suburban edge of Schenectady, next to a gold course), have both been destroyed and replaced by retail. Granted, it’s suburban-style retail in both cases, but the point is it seemed to be no big deal to acquire and knock down the office buildings, and the RCA complex was a large one.
“…on the suburban edge of Schenectady, next to a gold course…” Golf course, not gold course.
Too many huge wild cards to make generalizations yet.
Top tier Metros like NY, Chicago, San Francisco & Boston are linked by rail to small & mid sized cities like Jersey City, Newark, Stanford, San Jose, Providence – that should be able to provide reasonably affordable space with great transit access.
So far only Jersey City has played this card to the hilt.
Likewise- what about the former industrial rings of often high quality warehouse & factory buildings that could be converted to large floor layouts, back offices, research & tech spaces?
There should be a huge middle ground between Midtown Manhattan or The Loop & a generic beltway office park.
Sorry, I meant Stamford, Connecticut- not Stanford.
Jersey City is New York on the other side of the river. I don’t think that’s the same as going from Boston to Providence or Chicago to Indy.
Newark is a hybrid in my mind, as is San Jose and Stamford.
The Providences and New Havens, Sacramentos and Indianpaolises are in a different position. They are far enough away to maybe lose. Goes with Aaron’s recent posting “Don’t fly too close to the sun”.
“A handful of top executives gather in America’s capitals of capitalism while the good paying core of the old headquarters — including many upper middle class positions — remain in more workaday cities.”
Seems like cities are bifurcating just like offices used to be? “C Cities” and “Cube Cities”?
However, I would say that in general even stronger cities like Nashville are seeing middle class jobs disappear. So the workaday “Cube” cities may have better economic growth prospects in general, but still are seeing a bifurcation, maybe just not as extreme as the “C Cities”.
Jersey City isn’t really anything, Newark couldn’t be with a little more rational thinking.
The industrial waterfront in Jersey City sat mostly vacant for years before being developed.
A lot of Aaron’s pieces have a grain of truth hidden in lots of generalizations.
Many if not most major cities restricted (or still restrict zoning in former industrial areas) like Long Island City.
We can’t really know what cities would be like or what housing or office uses might have developed.
Throw Arlington Virginia in there as an urbanised suburb/ satellite city. What would the economics look like if this “smart growth” model became common?
If one is looking at the office menu offered by most cities, one had basically- downtown/CDB or office park with little in between.
The killer app is to create urban areas that offer all kinds of options by mixing uses, creating multi direction commuting etc. The process of even thinking about this has just started.
Remember, that the nose bleed tax rates in many suburbs is related to thin, single use tax bases.
A “not so fast” vote here. We can cherry-pick the Boeing example. I suspect Chi, Dallas, Houston and Atlanta were on the short list. Because they’re such great places? No they just have excellent air connection to everywhere. Probably why Boeing left Seattle. Just too hard to get to. Checking the Fortune 500 top 20:
1. Walmart (Batesville Ak)
2. Exxon Mobile (Irving Tx)
3. Chevron (San Ramon Ca. Moving to Texas????)
4. Phillips 66 (Houston Tx)
5. Berkshire Hathaway (Omaha Nb)
6. Apple (Cupertino ,Ca.)
7. General Motors (Detroit. Mich)
8. General Electric (NYC)
9. Valero Energy (San Antonio Tx)
10. Ford Motor (Dearborn Mich)
11. AT and T (Dallas)
12. Fannie Mae (Washington)
13. CVS Caremark (Woonsocket R.I.)
14. McKesson (San Francisco)
15. Hewlett-Packard (Palo Alto)
16. Verizon (New York City)
17. United Health Group (Minnatonka, Minn)
18. J P Morgan (NYC)
19. Cardinal Health (Dublin Ohio)
20. IBM (Armonk NY)
I’m sorry. I don’t see a global city bias here. Really only banks seem to evident. Why would any other business locate in the CBD? Which is why when the actual number come out, the CBD will be shown to have reduced employment.
p.s. GE is more of a bank than anything else now.
I guess this list goes by revenues and is tilted heavily towards low margin retailers, distributors & wholesale businesses.
A low margin refiner like Valero is hardly a bellwether.
Not a very accurate picture of leading American corporations.
Aaron has this about right, but the HQ staff are often a tiny number of execs.
Interestingly, Google did not locate exactly in the CBD in either New York (Chelsea), San Francisco (Suburbs) or Chicago (West Loop)
http://www.theatlanticcities.com/commute/2013/11/googles-new-chicago-home-isnt-more-transit-friendly-it-more-highway-friendly/7482/
My guess is a lot of companies would like a middle ground but still very urban choice like Google’s with a wider footprint outside the CBD. Smaller business service, tech & law firms really thrive on the density.
Google’s large office in Pittsburgh is in town but also not directly in the 2 “downtown” areas.
I also don’t buy the lack of HQ directly in the smaller metro CBD’s as a huge sign of decline. If a lot more people are living there and tech & business service firms still find it attractive.
Atlanta was strange animal too. What exactly qualified as the main CBD- Downtown, Midtown or Buckhead?
In a lot of cities the “urban” difference between city and suburb is so blurred the term has no meaning.
If you CBD, looks, feels and operates more like a low density suburb- with higher taxes, good luck.
@Jon: “Atlanta was strange animal too. What exactly qualified as the main CBD- Downtown, Midtown or Buckhead?” No kidding. Coke, Ga. Pacific, Sun Trust, Southern Company and CNN are “in town” although not necessarily “downtown”. There are like five downtowns — which one do you mean? But then UPS, Delta, ICE, Home Depot and Chick Filet and Cisco Services are definitely not “in town”.
Atlanta and Birmingham are the only cities that I know fairly well. Both are see strong “in town” town population growth. What employment growth there is “in town” is in the entertainment, resident services, tourism, etc. areas. I think the same is true of NYC, San Francisco and Chicago. They are great places to live if you can afford it. Let’s face it, most of us can’t.
I think of NYC, Chicago and San Francisco as being “global cities”. Washington maybe. Houston, Atlanta, Seattle and Miami close but no cigar. I don’t know what to make of LA.
I think @John Morris is on to something: the industry of a company has a large impact on what is looks for in its HQ location. Lawyers and commercial banks like a variety of downtown areas; investment backs like Manhattan. Retailers, industrial and engineering companies show no such preference and are more likely to be in ‘burbs. Even if their HQ is in a downtown area, the main operation centers are usually in the ‘burbs.
I think this is behind the perceived growth of high-tech in downtown areas. Until recently, high-tech was very engineering-centric and almost always located in a suburb (anyone who doubts me needs to drive around Silicon Valley). Lately, that has changed: the newest high-tech growth stories are often more media-centric than engineering-centric (think Facebook and Twitter, and increasingly Google), and these companies are either based in downtown areas (Twitter) or locate important offices therein (Facebook and Google). I think these trends are related – as these companies are taking the place of old media stalwarts like newspapers (which are getting hammered), they are locating nearby to access the same talent pools and ad agency and content creator networks.
Contrary to some observers, we are not seeing high-tech move from the ‘burbs to the big city; rather, we are seeing high-tech companies invade the media space and become (partly) assimilated by it.
Dereck Rutherford is right about the new breed of tech/media companies. Comcast is building like crazy in downtown Philadelphia. It already has the largest building in Philly, the 950 ft Comcast Cent, and now is building the soon to be tallest building right next door, The 1,200 ft Comcast Technology and Innovation Center. They are becoming a tech/media company and need the space for all those urban minded engineers they plan on hiring.
BTW the 2 million sq foot plus buildings will have fewer than 150 parking spaces between them when completed. Both sit next to the main underground commuter rail station in the city.
The next 20:
21 Bank of America (Charlotte NC)
22 Costo (Issaquah Wa)
23 Kroger (Cincy)
24 Express Scripts Holding (St. Louis)
25 Wells Fargo (San Francisco)
26 Citygroup (NYC)
27 Archer Daniels Midland (Decatur. Moving to Chicago)
28 Proctor and Gamble (Cincy)
29 Prudential (Newark NJ)
30 Boeing (Chicago)
31 Freddie Mac (McLean Va)
32 AmerisourceBergen(Chesterbrook Pa)
33 Marathon Petroleum (Findlay Ohio)
34 Home Depot (Atlanta)
35 Microsoft (Redmond Wa)
36 Target (Minneapolis Minn)
37 Walgreen (Deefield Ill)
38 AIG (NYC)
39 INTL FCStone (NYC)
40 MetLife (NYC)
My obeservations:
CBD only makes sense for firm with intangible product. It’s hard enough to move people to the site much less materials in any quantity.
I’d be worried about a company with an HQ divorced from its core operations. Some will point to GE as a paragon of this concept. I personally think GE is a rotten company. Has morphed into a bank — since it is being run out of its product lines. I’m old enough to remember when people would pay extra to the funny circled “G” logo on a product. Now it’s a sign of junk.
Density has its merits — to a point. Beyond this point, the diseconomies of scale kick in. Why is everything in Manhattan so expensive?
Wkg –
Somebody should pass your observations about core and intangible product to the braintrust at Walgreens – they have been contemplating an offshore HQ recently. http://www.cnbc.com/id/101580301.
And somewhere upthread John Morris was talking about the ease of converting former large HQs into mixed use retail. I’ve picked up some indicators through my work (I’ll leave it at that for now) that several parcels of the Cardinal campus in Waukegan/McGaw park may be being considered for such.
McKesson
CVS Caremark
AmerisourceBergen
Cardinal Health
Valero Energy
These companies & the big oils on the list get a high % of revenue from wholesaling & distribution. Of course they seem huge but they are not a great indicator of the American economy as whole.
NYC does seem to be seeing a glut of CBD office space, partly from firms downsizing Hq staffs & partly from the attraction of areas slightly outside the main business districts.
The trendy, hip locations are places like Chelsea & The Meatpacking District.
Google
Twitter
InterActiveCorp (IAC)
Martha Stewart Omnimedia
DoubleClick
Tommy Hilfiger
Brooklyn also hosts lots of tech companies like Etsy
Old Midtown Madison Ave landlords are struggling to market spaces in an area seen as too corporate and culturally dead.
http://www.nytimes.com/2014/03/26/realestate/commercial/a-midtown-landlord-sells-a-lifestyle-to-lure-creative-tenants.html?_r=0
What this seems to indicate is that cities need to think outside the CBD to create a dense network of transit oriented locations and mixed use districts.
Single use zoning is disaster.
urbanleftbehind, wkg–
Most of the HQs on this list are the “traditional” kind, which include not only the C-suite but significant corporate support activity.
Aaron’s point is that companies are now starting to divorce/bifurcate the C-suite and the cubicles, as George and John commented above. The top of the Fortune 500 is starting to go there; Boeing and ADM are merely the most recent. JPMorganChase kept significant cubicle operations in Columbus, Ohio after the Chase/BankOne merger, for instance.
There is also the issue of domestic corporate income taxes in the US; increasingly “American” companies are legally domiciling offshore (Ireland, Bermuda, etc.) so that their international operations are beyond the reach of the IRS. This is behind the Walgreens story; where the legal flag is planted may or may not be the real “HQ” of the business.
Think of the cruise-ship industry: largely controlled by two or three corporations of mixed nationality and legal incorporation, with executive headquarters in South Florida, running ships flagged all over the world to ports of call all over the world, staffed and steered by a veritable United Nations of employees. Their assets are supremely portable and spend much of their time in international waters.
This article on NYC’s shifting office dynamics points out several trends
http://www.nytimes.com/2014/03/26/realestate/commercial/a-midtown-landlord-sells-a-lifestyle-to-lure-creative-tenants.html?_r=0
“As Wall Street sheds jobs and consolidates its office locations, established centers of business in Midtown have experienced lagging rents and large vacancies. According to CBRE, some 14.7 percent of space will become vacant over the next year in the Grand Central area, compared with 12 percent in Midtown and an exceptionally competitive 9.3 percent in Midtown South.
As the city’s economy grows increasingly dependent on the creative sectors, like technology, advertising and media, neighborhoods like Midtown South, once dominated by garment workers and industrial spaces, have been transformed into market leaders, attracting fast-growing start-ups and, increasingly, blue-chip tenants.
“The psychology of tenants is changing,” said James Emden, a vice chairman in New York for the brokerage firm Colliers International. “Many companies are going to West Chelsea, to Midtown South, even the Financial District – Revlon, for example, recently announced it was leaving 237 Park Avenue for 1 New York Plaza.”
The huge trend here is that the firms are giving up the locations closest to the main commuter rail line terminals like Grand Central. (Another bad sign for Connecticut & Westchester)
Likely this reflects a larger % important of employees living in the city itself.
Lower Manhattan is much better connected to NYC than suburban locations.
Zoning still hasn’t caught up with the mixed use appeal and tilts far to heavily towards office space.
I just want to add to the dynamics of Atlanta. “Perimeter” an edge city with really the worst traffic is where the center of gravity has shifted in terms of employment. Downtown will gain more than it has (other than convention traffic). Midtown and Buckhead are growing, but more and more people continue to live further north and don’t want to travel into the city. Home Depot’s HQ is not the city either.
I wasn’t there long and never actually saw downtown. Buckhead is growing pretty rapidly with more apartment construction than I saw in Midtown.
Infill in the old rail centered industrial areas is just starting with apartments sprouting along the Belt Line bike path. They are reclaiming an old Sears catalog warehouse into a huge retail and apartment complex.
http://www.poncecitymarket.com/
A lot of evidence of gentle infill around Virginia Highland/Little Five Points. The Old Fourth Ward is also seeing growth but I was only at the edge of that.
We were only there for days on a emergency business trip without a car. My overall impression was of a city primed to regain residents.
The thing one notices about Atlanta or at least the parts I saw of it is the quality of its urban structure.
The city saw huge growth in the 1880-1925 era and has wide streets and great old streetcar oriented neighborhoods like Inman Park. The old industrial belt that surrounded the city is being filled in, at least on The East Side areas I spent time in.
The other thing one notices is the size of the black upper middle class.