A wrinkle on corporate headquarters: leaving the city as buildings age

State Farm four building complex in Richardson, Texas. Dallas Morning News photo.

In the late 1990s and 2000s there was for a time the move of corporate headquarters from the suburbs to the city such as Compuware and Quicken Loans in Detroit, Panasonic in Newark, etc.  

Plus Amazon's HQ2 quest focused on places well connected by transit, even if Arlington County, just outside of DC, is a suburb. GE to Boston ("Corporate headquarters relocating to the center city: GE chooses Boston," 2016), etc.

At the same time, firms still moved out of the city.  

For example, the wage tax in Philadelphia make it hard to attract large businesses, although Comcast stays committed.  Plus, suburbs often lure city-based businesses with incentives ("Real Estate Giant CoStar Group Chooses Arlington for its Headquarters" Arlington County).

State Farm's suburban Dunwoody complex does have a subway connection, but most people get there by car.

And while Amazon was looking for an urban location, State Farm in Dallas and Atlanta built new complexes that were road-centric, given the small footprint of transit in those cities ("Businesses moving back to the center: not a universal trend," 2015).

Plus headquarters moving to city areas, but not directly in the city ("Boeing to move "headquarters" to Northern Virginia," ) but close to airports ("Do tax incentives pay off? : Illinois; Tennessee; Rosslyn + "The Airport Access Factor"").

In 2015, Mercedes-Benz moved to a suburban location in Atlanta--makes sense as they are a car company, but they still have a bus division (which isn't super active in the US compared to Europe).  They are further consolidating operations from around the country to Atlanta as well ("Mercedes-Benz relocating 500 jobs to Sandy Springs HQ, plus new R&D facility," Atlanta Journal-Constitution).

Downtown Dallas, with the Fountain Place building shown in the background, has the second-highest office vacancy rate of any downtown in the nation.

Dallas is seeing firms move to the suburbs to new buildings ("The reckoning: Downtown Dallas must wrestle with future after AT&T exodus," Dallas Morning News, "Dallas Is Booming—Except for Its Downtown," Wall Street Journal).

Companies are abandoning this neighborhood and its aging office towers. They are heading to the Uptown district or the thriving suburbs, often over concerns about crime and homelessness. Left behind are defaulted loans, foreclosures and deeply discounted property sales.

The building ATT is in today. 

Real-estate investors purchased $51.7 million worth of office property in downtown Dallas in the first three quarters of this year, compared with $1.8 billion in Dallas’s suburban markets, according to data firm MSCI.

The building ATT will be moving to is the former HQ campus of Electronic Data Systems. Although they may tear it down and build new. 

... Many of the forces weighing on downtown Dallas—from remote work to homelessness—are afflicting other urban core neighborhoods. Businesses and investors have fled the downtown districts of St. Louis, San Diego and Portland, Ore., for the relative tranquility of neighboring suburbs.

Also see "The reckoning: Downtown Dallas must wrestle with future after AT&T exodus," Dallas Morning News.

“If you look at the average large building, like something over 50,000 square feet, the median age is roughly 45 years old,” Triolet said. “The problem is in the (Central Business District) in the ’80s — people wanted the biggest and most glamorous. So, they made the floor plates bigger, and they wanted to make it a contest of who could build the tallest buildings.”

Corporate trends have swung another way. Toyota, American Airlines and now AT&T are examples. Companies want shorter and more horizontal buildings. Skyscrapers give way to campuses. It’s easier to sell smaller separate buildings than large high-rises, Triolet said.

Downtown buildings have aged, and more recently there hasn't been a lot of new construction, especially on a speculative basis, because of high interest rates and the discombobulation of the commercial office real estate market as a result of covid and the rise of work from home--although this is changing some, as more businesses are requiring workers to come back to the office, at least for a few days each week.

Cities have always had to deal with suburbanites fear of the city when it comes to working and visiting.  Covid related declines in quality of life and an increase in crime has also led firms to the suburbs, such as in Portland ("A Fire Sale of Portland’s Largest Office Tower Shows How Far the City Has Fallen," WSJ).  

After Digital Trends moved out of the U.S. Bancorp Tower in Portland, Ore., the technology publisher didn’t hold back about why it left. The property, once a premier address in the city, was afflicted with “vagrants sleeping in hallways of vacant office floors.” They were “starting fires in stairwells, smoking fentanyl and defecating in common areas,” according to papers the company filed in a lease-termination lawsuit.

Two years later, the city’s biggest office tower stands more than half empty. U.S. Bank, the largest tenant whose parent company’s name is on the building, pulled most of its employees out last year after more than a century in the city. The 42-story tower was recently put up for sale. The building affectionately known as Big Pink because of its pink-hued Spanish granite and pink glazed glass has an asking price of about $70 million, according to brokers. That is more than 80% below what the owners paid for it a decade ago.

Interestingly, the suburban office market still has problems, even though it doesn't in Dallas and certain other cities.  Large complexes, like the State Farm in Dallas, with the rise of work from home during and after covid, don't need so much space ("This company is trying to sublease over 400,000 square feet of office space in D-FW," Dallas Morning News). 

DC's office market is weaker because of the shrinkage of the federal government, so many buildings are being looked at for conversion to residential ("Washington D.C.’s Stockpile of Old Offices Makes It a Mecca for Housing Conversions," WSJ).  Could this be an option for cities like Dallas, St. Louis, and San Diego?