Economy: Why Corporate America Is Leaving the Suburbs for the City

August 3, 2016

From The New York Times


Economy
Why Corporate America Is Leaving the Suburbs for the City

By NELSON D. SCHWARTZ AUG. 1, 2016

   Mark Vergnano, chief of Chemours, which came close to leaving Wilmington, Del., for the suburbs.  Credit Will Figg for The New York Times

WILMINGTON, Del. — For decades, many of the nation’s biggest companies staked their futures far from the fraying downtowns of aging East Coast and Midwestern cities. One after another, they decamped for sprawling campuses in the suburbs and exurbs.

Now, corporate America is moving in the other direction.

In June, McDonald’s joined a long list of companies that are returning to downtown Chicago from suburbs like Oak Brook, Northfield and Schaumburg.

Later this month, the top executive team at General Electric — whose 70-acre wooded campus in Fairfield, Conn., has embodied the quintessential suburban corporate office park since it opened in 1974 — will move to downtown Boston. When the move is completed in 2018, the renovated red brick warehouses that will form part of G.E.’s new headquarters won’t even have a parking lot, let alone a spot reserved for the chief executive.

But even as they establish new urban beachheads, business giants like G.E. are also changing the nature of their headquarters, staffing them with a few top white-collar employees and a smattering of digital talent, rather than recreating the endless Dilbert-like pods they once built in the ’burbs.

“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,” said David J. Collis, who teaches corporate strategy at Harvard Business School.

“But the trend also represents the deconstruction and disaggregation of the traditional corporate headquarters,” he explained. “The executive suite might be downtown, but you could have the back office and administrative functions in Colorado, the finance guys in Switzerland and the tax team in the U.K.”

Reinforcing the trend, Chemours plans to announce on Tuesday that it is staying here in Wilmington after considering suburban locations, most likely in the century-old headquarters it inherited from DuPont when the chemical giant spun out Chemours last year.

Unlike Chicago and Boston, Wilmington’s urban renaissance remains a work in progress, and Chemours was very close to moving to a new home in southern New Jersey or suburban Philadelphia, despite the DuPont family’s deep roots in Wilmington and the state of Delaware.

But the company’s chief executive, Mark Vergnano, ultimately came to the same conclusion that leaders of bigger and better-known firms did: To attract younger workers, it helps to be in the city.

“We are going through a change in our work force, and we wanted to be where we could attract millennials,” Mr. Vergnano said. “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.”

To be sure, cash from the State of Delaware and other incentives played an important role in the decision as well.

In addition to providing Chemours, which produces a range of industrial chemical products, with a $7.9 million package of grants, Delaware overhauled its corporate tax code, sacrificing revenue and easing the company’s tax burden as an added lure to stay put.

For Wilmington, where the unemployment rate of 5.7 percent is above both the national average and Delaware’s overall 4.2 percent level of joblessness, keeping Chemours’s 800 headquarters jobs in the city counts as a major win.

“In a more perfect world, states would be competing on the quality of schools, infrastructure, work force and so forth,” said Gov. Jack A. Markell of Delaware. “We live in a world that’s not perfect, so if other states are competing on the basis of these dollar incentives, we need to be in the same arena.”

In an era of relentless cost-cutting, many corporate moves these days coincide with downsizing. Kraft Heinz, for example, had 2,200 workers when the company was based in Northfield; it has 1,500 now in downtown Chicago.

With advanced communications tools making it easier than ever to separate headquarters from other corporate operations, location is increasingly being driven by function.

   Chicago, from above. McDonald’s and Kraft Heinz are among companies moving headquarters downtown from the suburbs. Credit Kiichiro Sato/Associated Press

The first 175 members of G.E.’s management team, including Jeffrey R. Immelt, the chief executive, will move to Boston’s Fort Point section on Aug. 22. Even after the move is completed, about 800 G.E. employees will be based there. Hundreds of other workers in back-office functions like human resources, legal and finance will be scattered among G.E’s existing locations in Cincinnati, Norwalk, Conn., and Schenectady, N.Y.

The headquarters of Motorola Solutions will start moving to downtown Chicago on Aug. 15, though more workers will stay in suburban Schaumburg than move to the new offices near Union Station. But for the first time in half a century, top executives from the company will again be in downtown Chicago.

“Where you work really matters,” said Greg Brown, the chief executive of Motorola Solutions. “No disrespect to Schaumburg, but customers and new hires didn’t want to come to the suburbs an hour outside of Chicago. We wanted energy, vibrancy and diversity, and to accelerate a change in our culture by moving downtown.”

Mr. Brown and most of the executive team will be in the city, along with data scientists and design engineers; workaday functions like procurement, training and supply chain management will stay in Schaumburg.

Over all, Motorola Solutions will have 1,100 employees in downtown Chicago, and 1,600 still in Schaumburg. Unlike many other corporate migrants, the company did not receive any financial incentives to move, Mr. Brown said.

“This was the right thing in terms of strategy,” he said. “Millennials want the access and vibrancy of downtown. When we post jobs downtown, we get four or five times the response.”

As for G.E., executives were focused on moving to a city from the beginning of its search for a new headquarters, said Ann R. Klee, director of Boston operations and development for the company.

Along with eliminating the parking lot (workers are being encouraged to use public transit) G.E. wanted to do away with security gates and the sense of isolation that characterizes many corporate campuses.

“This is going to be the exact opposite,” Ms. Klee said. “We want it to be open and to bring the public in with a museum and exhibits of technology like 3-D printers.”

Besides blue-chip icons like G.E., McDonald’s and Kraft Heinz, venture capital investors and start-ups are increasingly looking to urban centers, particularly on the West Coast, said Richard Florida, an urban theorist and professor at the University of Toronto.

“The period of companies moving to suburbs and edge cities has ebbed, but I had thought that start-ups would continue to locate in so-called nerdistans, like office parks,” he said. But a recent study by Mr. Florida showed more than half of new venture capital flowing into urban neighborhoods, with two San Francisco ZIP codes garnering more than $1 billion each, he said.

The return of a top echelon of executives to American cities reflects — and may well reinforce — disparities driven by widening inequality, underscoring how jobs are disappearing in other locales.

Over all, there has been a slight pickup in employment and population in the central core of big cities, said Joel Kotkin, an author and urban geographer at Chapman University in California. But many close-in suburbs and neighborhoods are withering, particularly in the Northeast. More distant suburbs and exurbs are still thriving, especially in the Sun Belt.

“The elite functions are going downtown,” Mr. Kotkin said. “But at the same time, middle-management jobs are moving to the suburbs in places like Dallas, if they’re not leaving the country entirely.”

In Wilmington, local shopkeepers were elated that Chemours decided not to follow its former corporate parent, DuPont, to the suburbs. “Anybody who has a business in downtown Wilmington doesn’t want to lose Chemours,” said Leonard Simon, whose family-owned men’s clothing store, Wright & Simon, has been around the corner from Chemours since 1952. “I’m thrilled.”

Jeffrey C. Flynn, director of economic development for Wilmington, said that the advantages of city life ultimately proved to be a compelling selling point.

“We’re not Philadelphia,” Mr. Flynn said, “but we do have an urban atmosphere.”

A version of this article appears in print on August 2, 2016, on page B1 of the New York edition with the headline: The Lure of Downtown.

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