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From Site Selection magazine, March 2016

Striking a Balance

The lure and lore of the downtown headquarters

The Rose Fitzgerald Kennedy Greenway Conservancy in Boston is just a stone’s throw from the Seaport District where GE is moving its corporate headquarters.
Photo by Kindra Clineff courtesy of Massachusetts Office of Travel & Tourism

by ANDREW PHILLIPS, Principal,
EY’s Quantitative Economics & Statistics practice

In recent years, a number of high-profile headquarters relocations have suggested a move back to central business districts after spending decades in suburban office parks. Indeed, several headquarters relocations this past year have chosen central-city locations with public transit access and nearby housing that allow employees to avoid congested highways while capitalizing on the high concentration of educated workers and amenities in urban centers. The most recent emblem of this trend is GE’s January announcement that, after more than 40 years at its suburban campus in Stamford, Conn., it will relocate its operations to Boston.

Headquarters offices are becoming leaner as companies streamline their management structure and increase their use of remote shared services centers. US Census data show jobs at headquarters locations declined by 2 percent nationwide in 2015 while aggregate US employment grew by 2.3 percent. Recent project announcements reflect this trend:

  • Kraft Heinz’s move from Northfield, Ill., to downtown Chicago will shrink its footprint by 75 percent.
  • ConAgra is moving 700 jobs from Omaha into Chicago’s Merchandise Mart, consolidating employees from suburban Chicago and the company’s former Omaha headquarters.
  • Cadillac, citing the recruitment of talent from eastern US universities as a top factor, is moving senior management from Detroit to a Manhattan location.

It’s Not All About Downtown

Despite the prominent downtown headquarters projects, the suburban office park remains a popular choice for large headquarters facilities. UTC announced a low-key relocation from downtown Hartford, Conn., to an office park in Fairfield, Conn., in an effort to reduce corporate office overhead by nearly $100 million (General Electric just announced plans to relocate its headquarters from Fairfield to Boston). German grocery store Lidl chose a suburban northern Virginia location just outside of Washington, DC, for its US headquarters. Movement Mortgage chose a suburban Charlotte location just across the state line in South Carolina.

Only 7 percent of all corporate management locations in the US are located in downtown zip codes.

Other companies are striking a balance between a dense urban location and a suburban campus. Expedia’s new Seattle headquarters will be on the water, a 10-minute drive from downtown and served with shuttle buses. UnderArmour chose a location in an underdeveloped area of Baltimore that will be large enough to host its planned 10,000-person campus. And Uber chose to expand its existing footprint in the Bay Area by adding 2,000 to 3,000 people in a former Sears building in downtown Oakland, in addition to expanding its headquarters operations in San Francisco.

Headquarters projects locating in the suburbs are increasingly embracing the concept of transit-oriented development, with locations catering to employees who walk, bike or take public transit to work. This is an important consideration given that the number of these non-driving employees has grown by 10 percent over the past decade, and includes a disproportionate share of the young workers that employers hope to attract.

The Bottom Line

EY’s analysis of US Census data shows that over the past decade, the number of headquarters located in downtown areas hasn’t grown more quickly than other areas. The number of downtown headquarters expanded by 9 percent over the past decade compared to 10 percent in suburban areas.* The data also show that only 7 percent of all corporate management locations in the US are located in downtown zip codes.

Regardless of whether headquarters locations choose downtown or suburban locations, certain priorities remain the same in the location choice:

  • Attracting top talent is an HQ’s top priority. The cities with the best talent, reasonable labor costs and high quality of life will continue to attract headquarters projects. GE chose Boston and Cadillac chose New York to attract top-tier talent. But many others are choosing cities such as Chicago or Atlanta to find similar numbers of advanced degree holders at somewhat lower wage levels with lower cost of living.
  • Executives require easy air access. Proximity to an airport is good; proximity to an airline hub is better. Companies announcing new headquarters projects in 2015 frequently cited direct connections to a large number of destinations as one of the top considerations — a trend borne out in the data. Airport hub cities have 70 percent more headquarters employees per capita than their non-hubbed counterparts. Even for mid-size cities, the effect is prominent: Those with hubs have 47 percent more per-capita headquarters employment than non-hub cities.
  • Decisions remain driven by the bottom line — taxes, incentives, and real estate costs. Several of the headquarters announcements this year are part of an overall cost-reduction strategy. UTC’s relocation is part of a $100-million corporate office overhead savings plan. ConAgra’s move is part of a $300-million efficiency plan. And GE’s move was at least influenced by the Connecticut governor’s plan to raise taxes in its former headquarters state.

Each company announcing new headquarters projects in 2015 had a set of motivations that reflected its own balancing of these location drivers. For some, the best choice was a downtown location. But for many others, the suburbs will remain home — at least for now.

Andrew Phillips is a partner/principal in EY’s Quantitative Economics & Statistics practice, and the author of EY’s US Investment Monitor.

*Data through 2013, the most recent year for which detailed data is available. Downtown zip codes defined as those with more than 15,000 residents per sq. mile or more than 1,500 business establishments per sq. mile.

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