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Companies Trade Suburbs for City Life

Companies Trade Suburbs for City Life

The site of Expedia's new Seattle headquarters.

Online travel agency Expedia will purchase a waterfront campus in downtown Seattle, making a downtown move for its headquarters from the suburbs. Credit: Expedia

Earlier this month, online travel agency Expedia Inc. said it plans to relocate its headquarters from a Seattle suburb that it has called home for nearly 20 years to the city’s downtown. That announcement was the latest in a string of high-profile companies making moves from the suburbs back to the city.

Last year, Motorola Mobility LLC unveiled its new 600,000-square-foot global headquarters in downtown Chicago, a return to the city after nearly 40 years in the suburbs. Archer Daniels Midland Co. also moved to downtown Chicago from Decatur, Ill.

The trend illustrates how decisions companies are making about relocations have come full circle. “In the late ’60s and early ’70s, CEOs in places like New York City fled the city and moved to the suburbs, leading to the growth of Westchester County, [N.Y.], Stamford and Greenwich, Connecticut,” said Ed McMahon, a senior resident fellow for the Urban Land Institute. “In those days, the determining factor was where the CEO of the company wanted to live.”

Now, large companies are moving back into the city in an attempt to attract and retain workers—particularly younger workers who are postponing homeownership and favor renting in walkable neighborhoods with easy access to restaurants, shopping and cultural opportunities.

Walkable locations aren’t just good for employee recruitment; they also can be good for the bottom line. According to Real Capital Analytics Inc., a commercial real estate data and analytics firm, prices for commercial properties in highly walkable locations show significantly greater appreciation than car-dependent locations.

Over the past decade, values for such properties located in central business districts have risen 125%, while values for suburban properties that are also considered highly walkable were up 43%. Prices were up only 21% to 22% for suburban properties that were either “somewhat walkable” or car-dependent. The data suggests that while demographic changes and tenant preferences are shifting back to urban locations, even in the suburbs, live/work/play environments with high walk scores also are drawing higher prices.

In Expedia’s case, the company plans to move its 3,100 employees from Bellevue, Wash., where it occupies 500,000 square feet, into 750,000 square feet of space in existing downtown Seattle buildings it is purchasing for $ 228.9 million.

“It’s about having an iconic waterfront campus headquarters that we think will help attract a very high-tech employee base and retain that high-tech base,” said Sarah Gavin, an Expedia spokeswoman.

The new location, which the company plans to renovate and occupy by 2018, will be a state-of-the-art workplace, with bright open spaces and amenities such as on-site dining, a fitness center and hiking and running trails. Rather than having to drive to lunch, Expedia employees will be able to bike to restaurants, Ms. Gavin said, something the company thinks “is really appealing.”

One company that recently announced a move to a more dense location after being in the suburbs since 1986 is Pepsi Beverages Co., the bottling division of PepsiCo Inc. Currently based in a 540,000-square-foot building in Somers, N.Y., the company plans to move its employees to other offices in Purchase and White Plains, N.Y. by the first quarter of 2016. “The exit from Somers was not an easy decision,” the company said in a written statement. “However, as we seek to build levels of internal collaboration and improve the ease of access across our Westchester locations and to Manhattan, Somers was no longer the most effective location for us to realize this vision.”

Companies are relocating to not only be closer to skilled workers but also to keep those workers happy. “They need to be where the brain trust wants to be,” said Rick Lechtman, eastern U.S. director of the National Office and Industrial Properties Group at Marcus & Millichap in New York. “Employees work 10- or 12-hour days at their desk and don’t want to be in the middle of nowhere.”

But the trend isn’t limited to large companies. Autodesk Inc., which occupies a 65,000-square-foot office building in suburban Waltham, Mass., as the headquarters for its architecture, engineering and construction division, plans to move its 200 employees this fall to a new location in Boston, where it has the opportunity to expand to 120,000 square feet.

“By going to an urban environment like Boston we get to interact with the community a lot more, especially the educational institutions and all the scientific and artistic thinkers that are part of that community,” said Amar Hanspal, a senior vice president at Autodesk.

What happens to the suburban spaces vacated when companies relocate? “Communities are turning them into everything from health clinics to city halls to community colleges,” Mr. McMahon said. “One of the biggest trends of the next generation is going to be the repurposing of an incredible amount of existing suburban development.”

In other words, it isn’t all bad for the suburbs. While the recovery of the urban core is widely known, “less heralded is the contribution that suburban office markets have been making to the office market’s recovery,” said Ryan Severino, senior economist and director of research for Reis, a provider of commercial real-estate market data.


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