General Electric Says Goodbye to the Suburbs
Four decades after abandoning Manhattan for the suburban greenery of Fairfield, Connecticut, General Electric is headed back to the city. A different city -- Boston. But definitely a city.
The new HQ will be in what is variously called the Seaport District or the Innovation District, a rapidly developing stretch of the South Boston waterfront that’s next to downtown and just across the water from Logan International Airport. A suburban office park this is not.
It is risky to read too much into this. The original impetus for the move was a tax increase in Connecticut. This may surprise people familiar with the term “Taxachusetts,” but Massachusetts now has only the 11th highest state and local tax burden in the country. New York, New Jersey and Connecticut are Nos. 1, 2 and 3. Massachusetts’ “business tax climate,” as calculated by the Tax Foundation, is solidly middle of the road (24th best in the U.S.). The Boston Globe -- which broke the news of the move Wednesday morning -- reports that GE is also being offered $120 million in tax breaks and other incentives.
Still, GE’s choice of an urban headquarters over a suburban one feels like it might be significant, so it’s worth looking for signs of whether it signals a broader shift.
In 1960, eight of the top 10 companies in the Fortune 500 were based in a big city, four of them in Manhattan. The two exceptions were Chrysler and Ford, which were based next to big manufacturing facilities in industrial suburbs of Detroit.
Then came the exodus to the office parks. Of the Manhattan-based firms, Texaco moved to the New York suburbs, as did IBM (not yet in the top 10 in 1960, but soon to join). Mobil left for suburban Virginia, GE left for Fairfield. Exxon stayed in the city a good long time, but finally decamped for the Dallas suburbs in 1990. Meanwhile, most of the big new companies that were climbing in the Fortune 500 ranks -- from the tech firms of Silicon Valley to Wal-Mart -- tended to stay far from downtown skyscrapers.
In 2015, only one of the top 10 companies in the Fortune 500 (General Motors in Detroit) was headquartered in a downtown office building in a major city. Phillips 66 is also in a big-league city, Houston, but far from downtown, while Berkshire Hathaway isn’t quite in downtown Omaha and Omaha isn’t quite a big-league city. As economists Edward Glaeser and Matthew Kahn documented in a 2001 paper, by 1996 less than 16 percent of employment in U.S. metropolitan areas was within a three-mile radius of a city center, and the median employee worked eight miles from the city center. That was still true as recently as 2011.
As Glaeser and Kahn described it, the shift from the city center was first a residential exodus, beginning in the late 1800s with the construction of streetcar suburbs, that was only followed many decades later by the rise of suburban offices. In recent decades, that residential exodus has reversed in several big coastal cities -- New York, Boston, San Francisco, Philadelphia and Washington. So is it time for offices to follow?
The answer is maybe. The return to cities, while a real phenomenon, is limited and seems far from inexorable at this point. Most population growth in the U.S. is in the South and West, and most of it is still in the suburbs.
Still, housing prices in cities have risen dramatically while suburban prices have lagged. Highly skilled workers are increasingly drawn to city centers. And you can see the beginnings of a response in the employment and commercial real estate markets.
Last February, City Observatory, a Portland, Oregon, think tank, reported that from 2007 to 2011 at least (2011 is the most recent year for which data was available), the long trend toward suburbanization of employment had reversed.
This isn’t exactly a massive shift, but there is lots of anecdotal evidence that something new is going on. In the Washington area, 86 percent of the office space under construction last year was within a quarter mile of a Metro station. Not all of that is in the city, but a lot is. In the San Francisco Bay area, a new survey by commercial real estate services firm CBRE found that while 73 percent of the office space occupied by tech firms in the Bay area is in sprawling Silicon Valley, 63 percent of the space occupied by “unicorns” -- closely held startups with a valuation of more than $1 billion -- is in San Francisco proper.
This does raise the question of whether downtown offices are the wave of the future or, in San Francisco at least, a fad being financed by overly generous venture capitalists. Another question is whether a return to working in cities will help reduce what Brookings Institution researchers call “the growing distance between people and jobs in metropolitan America” or make it even worse as all but the highest-paid workers are forced by high urban real estate prices to commute from distant suburbs.
Still, for the 800 GE employees coming to Boston -- 200 corporate staff and 600 “digital industrial product managers, designers and developers” -- this move seems great. An office on the waterfront near great restaurants, museums, tech startups and transit stops in Boston sounds a lot more appealing than one surrounded by lawns and parking lots in suburban Connecticut. Also, GE is trying to profile itself as a “high-tech global industrial company,” and while Boston is no Silicon Valley, it’s pretty high-tech for the East Coast. Lower taxes and a six-minute ride to the airport don’t hurt either.
I am aware that Irving, Texas, where Exxon Mobil is based, has a lot of people (232,406 at last count) and that most of them live in apartments, which sounds kinda urban. But it’s not the main city of its metropolitan area -- it’s not even No. 2 -- so I don’t think it counts.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Justin Fox at firstname.lastname@example.org
To contact the editor responsible for this story:
James Greiff at email@example.com