The Rise and Fall of the Suburban Office

Article by Carter Harrington, Vice President

Over the past several decades we’ve seen a huge number of giant corporations moving large operations out of expensive, urban cities to smaller, less expensive and more manageable suburban areas.

This action solved a number of problems for these corporations. First, they could cut down the commute for many of their employees already living in the suburbs with their families. They could also reduce their operating expenses with a larger property in a more affordable area. Lastly, they often cut salaries in cities where the cost of living was much lower than their big-city counterparts.

For example, many of the global banks would relocate their operational positions to satellite offices. Instead of Manhattan they’d have offices in Charlotte, Salt Lake City, Stamford, Raleigh, and Jacksonville. They would keep smaller offices for their client-facing roles in cities like San Francisco, Chicago and NYC.

But is this approach changing?

Now, it’s about the talent.

Just last year, the fast-food giant McDonald’s announced they would be moving their 86-acre suburban compound to the West Loop of Chicago. But, why?

Because so many companies have followed suit by building huge operations in less populated, suburban areas they found they were competing for the same small pool of talent. People were reluctant to relocate to these areas and the smaller neighborhoods offered less qualified candidates than a larger market would.

The Shift from Suburban to City

The shift in location seems to be happening for a few different reasons. As we mentioned, large corporations with suburban operations are finding it harder and harder to attract the right talent.

Secondly, economic opportunities seem to be shifting to the larger cities so many recent college graduates and young professionals with the emerging technology skills that these large companies are looking for seem to be flocking to the areas where the most job opportunities exist. And it appears to be a better gamble to put down roots in a city like Los Angeles or NYC where the job offers will be in abundance.

The talent that these corporations are so desperate to find often include a younger generation well versed in the skills of e-commerce, software analytics, digital engineering, marketing and finance. And that talent is attracted to the bright lights, big city of the more urban areas.

What This Means for Commercial Real Estate

A shift in office space from more remote suburban areas to urban cities won’t mean a reduction in the overall demand for property – it will just mean some important changes for the commercial real estate industry.

In most cases, not all operations will be shipped off to the big cities so for many owners it will mean breaking down large complexes into smaller office spaces that can be shared by several different companies. This could mean properties that have been vacant for decades could be opening up for new activity and tenants.

And corporations will want to save on expenses as they have by keeping these remote offices, but it’s likely they will be more strategic about what workers are located in the city and who will be in the suburban locations. This often looks like the more client-facing or creative jobs located in the urban location while the operations and back-office employees will continue to work in the suburbs.

A shift in the market will always shake things up a bit but this does not mean a lessened demand for commercial property. If anything, this means there will be a higher number of transactions and the need for qualified commercial real estate professionals with creative solutions for growing companies with changing needs.

Carter Harrington | Vice President
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