A city seemingly abandoned by its employers, its state government, its nation. The industry that spawned its rise regarded with contempt for years of poor quality. And, let's be honest, as a predominantly minority urban area, treated with thinly disguised disdain for its racial make-up. And then things began to turn around: the government saved the auto makers, who, finally listening to their customers, produced cars of quality and affordability. It's wasted core became a funky cool destination for artists, craftspeople and others attracted by cheap rents and the tough guy persona the city adopted. The slogan "Imported from Detroit" became an in-your-face challenge to the rest of America which had written off its products and what they stood for.
Washington, New York, San Fran, Dallas, Seattle, Philly, Portland, downtown LA and a half dozen other centers are also thriving. In other places - Beijing, Rio, Mumbai et al - the same forces are at work. Urbanization is one of the great mega-trends of the near future. And beyond the quest for jobs, the word is that downtowns are where to go. Young people crave the easy socialization and older people appreciate the ease. That it seems somehow responsible adds to the allure.
There is some concern that this is perhaps more hype than reality. That the implied tidal wave receding from the suburbs is more urban myth than fact on the ground. The big real estate companies, who are mostly responsible for this meme, appreciate the urban upsurge but dont want to undermine and cannibalize their suburban office parks. They are talking their book, as all holders of assets will do. Rents in the 'burbs may not yet be collapsing, but the cost basis is shifting and the economic assumptions that drove the ex-urban migration may no longer be valid. JL
Yonah Freemark reports in The Atlantic:
When governments or companies fire workers, they reduce their need for office space; no one wants to pay for space they’re not using. It's unsurprising then that the recession and the massive drop in employment that accompanied it brought significant office vacancies across the country.
The relative resiliency of many downtowns in face of these problems encouraged some in the national media to announce an unprecedented shift back into central business districts following decades of the suburbanization of employment. After losing a significant share of the market to suburban office parks, could downtowns finally be hitting their stride?
Individual company moves were seen by some urbanists as indicators of larger changes; somehow the recession had awakened us collectively to the fact that years of profligate expansion into the hinterlands had been ill-conceived. Decisions by the likes of United Airlines and several other major companies to relocate thousands of jobs from suburban locales into Chicago’s Loop over the past five years was heralded as “a trend long in the making” by the Chicago Tribune; UBS’s flirtation with leaving Stamford for downtown Manhattan played into a “narrative of urban renaissance and suburban decline,” explained The New York Times (UBS eventually decided to stay in Connecticut).
But the facts, at least on the national scale, don't necessarily support this supposed trend. “We haven’t seen evidence of a shift in terms of demand,” says Arthur Jones, senior managing economist at real estate service firm CB Richard Ellis.
A review of data from a sample of 27 metropolitan office markets in the second quarter of 2011 reflects this assertion: Vacancy rates in CBDs are higher than those in suburbs in about as many markets as those where suburban vacancy rates are higher. Thanks to the general glut of office space everywhere, there hasn't been much new construction anywhere, so vacancy rates may be the best indication of the relative health of different sectors of metropolitan areas.
And changes over the past two years don’t look great for downtowns, either. “If anything, there was a smaller drop off in suburban office space,” says Jones.
Of course national variations, which may be cyclical more than anything else, mask success stories in individual markets.
Detroit—perhaps the United States’ most troubled central city and one of the country’s most sprawling metropolitan areas—is seeing its downtown fill up at a record pace. Though dozens of skyscrapers sit empty in the heart of what was once one of the country’s biggest cities, recent announcements that thousands of workers would be moved from the suburbs into downtown by Blue Cross Blue Shield of Michigan, Compuware, and others suggests that the city may indeed be seeing a growing office market share for its CBD.
“I think [Detroit's trend] is undeniable,” says Frederick Liesveld, executive vice president at Grubb & Ellis. Liesveld, based in Southfield, focuses on the Detroit market and predicts that its downtown will have lower office vacancies than the suburbs within six months, despite decades of abandonment. Huge suburban office spaces of up to one million square feet are now available, and there's few signs that they'll fill up quickly.
But Liesveld doesn't credit these changes to a shift in conventional wisdom in the real estate market. Rather, he sees individual business leaders who have played important roles in setting a precedent for change. “They have committed themselves to locating in Detroit,” Liesveld says, “and I think that’s the catalyst.”
Years of work set the stage for what is happening in Detroit now. “Traceable momentum [for downtown] couldn’t really be tracked until recently,” says Liesveld. So perhaps Detroit is at the forefront of a process that could extend to other metropolitan areas—if local leaders devote themselves to the effort. Or maybe this is just another stage in the constantly changing real estate cycle.
Where both Jones and Liesveld agree is that a major portion of company moves over the last several years resulted from a sudden increase in availability. “Across the country,” says Jones, “rental rates have adjusted so much that you can really move up.” When companies do move from suburban office parks into CBDs, they're following simple economic logic: For the most part, it’s cheaper than it used to be to do business downtown.
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