300_corevalues_coverSuburban office parks, which developed and spread far and wide as businesses left American cities, are now losing ground to those same cities. Hundreds of companies have moved to walkable downtown neighborhoods across the country in the past five years. According to a new report from Smart Growth America, “As job migration shifts toward cities and commercial real estate values climb in these places, a vanguard of American cities” have bet on walkable neighborhoods.

Core Values: Why American Companies Are Moving Downtown was written  in partnership with Cushman & Wakefield and the Center for Real Estate and Urban Analysis at the George Washington University (GWU) School of Business. The authors surveyed nearly 500 companies that have built or expanded in walkable urban neighborhoods and interviewed 45 senior staff at those companies, as well as officials in cities trying to recruit employers.

These companies did not all invest in walkable downtowns via relocation. Some chose consolidation, expansion, or the creation of new offices or companies. Nor did the companies go exclusively to central business districts. A few went to secondary business districts or even to walkable, transit-oriented suburban locations.

These companies pointed to a number of competitive advantages they gain from locating in walkable downtowns. These include the following:

  • Attracting and retaining talented workers;
  • Capitalizing on their surroundings to build their brand and corporate identity;
  • Facilitating creative collaboration with nearby colleagues;
  • Being close to business partners;
  • Centralizing operations; and
  • Supporting “triple bottom line” business outcomes (profits plus socially and environmentally friendly investment in a city center).

The authors found the businesses choosing to locate downtown are enormously diverse. They represent more than 170 industries, including manufacturers, information technology companies, universities and colleges, advertising agencies, and oil and gas companies. Fifty-two are on the Fortune 500 and 12 are on Fortune’s 2015 list of “100 Best Companies to Work for.” The downtown trend can be seen in more than 100 cities, big and small, in the country’s midsection and on the coasts.

“It’s clear there has been a sea change” in attitudes toward urban life and in the urban real estate market,” says Chris Zimmerman, Smart Growth America vice president for economic development, pointing to the rise of the millennial generation and the information economy as the chief causes.

“The vitality of downtown neighborhoods is driving commercial real estate in a way that’s never occurred before,” adds Paula Munger, who directs business line research at Cushman & Wakefield. Companies have shown their willingness to pay a premium to locate in walkable neighborhoods, notes Zimmerman.

The popularity of walkable neighborhoods is illustrated by the higher prices and rents they command for living and working spaces. For example, office rents in walkable urban locations exceed those in suburban places requiring a car to reach by 30 percent in Atlanta; 56 percent in Washington, D.C.; and 134 percent in Boston.

925-map

(Smart Growth America)

This is “evidence of the pent-up demand for walkable urban places,” says Patrick Lynch of GWU’s Center for Real Estate and Urban Analysis.

Comparing these companies’ new versus old locations, the report’s authors calculated scores for the ease of walking to places with amenities, for good biking, and for coming to work by mass transit. They found walk scores were over 70 percent higher and bike scores over 50 percent higher.

“By far the most prominent reason companies cited for their move downtown,” the report said, “was to recruit and retain talented workers . . . in a fiercely competitive environment.” They meant millennials in particular. According to Zimmerman, studies show that millennials “place the choice of where to live” over what job to take.

Adam Klein, chief strategist of American Underground, a startup incubator in Durham, North Carolina, put it this way: “We wanted to be in an amenity-rich environment where our employees could walk to get a cup of coffee and participate in art, music, and the excitement of downtown. We’re able to show potential employees a cool office in middle of downtown, and that has definitely helped us recruit people.”

To attract young talent, “you have to provide the whole package,” Munger explained. “It’s no longer just a job, it’s no longer just an office. It’s about the experience, it’s about creating a sense of place.” A place where, she says, employees can live, work, and play more seamlessly. “More opportunities for social interaction,” she adds, “are the key things that millennials are looking for.”

For their part, the report said, companies are looking for the following in a downtown:

  • Walkable neighborhoods where they can live and play (i.e., a vibrant mix of cafés, restaurants, shops, entertainment venues, and cultural attractions as well as housing).
  • Accessibility by a wide range of transportation options as well as easy access to the rest of the city and region.
  • Great office space reflecting an innovative and creative company culture. Often this means renovated warehouses, inspired architecture, and open office space.
  • A warm welcome from the city. This could be financial incentives, help with permitting and licensing, or simply a personal welcome or tour of the city.
  • Clean, safe streets.

Creating walkable downtown neighborhoods “is a crucial economic development strategy for cities,” says Geoff Anderson, Smart Growth America’s president and CEO.

“If you don’t grab hold of this trend right now,” Munger adds, “you’re going to . . . miss out on being a world-class city, and I mean that for cities of all sizes.”

The report calls on cities without such downtown neighborhoods to take proactive measures to create them. The report concludes with a laundry list of steps—in urban design, infrastructure, housing, public amenities, place management, and so on—that cities can take to attract companies to their own downtowns.