A Suburban Recovery: Job Sprawl

Urban boosters will want to stop reading right now. From the Wall Street Journal: "Sand and Surf Help Spur Real-Estate Revival: Sunny Santa Monica, Calif., Stands Out in Luring the Talent That 'Does Not Like to Work in High-Rise Office Buildings'":

Nationally, the office market began to recover in 2010, with the U.S. vacancy rate dipping to 17.7% in the fourth quarter from the recession's peak of 17.9% in both the first and second quarters, according to Grubb & Ellis. In 2009's fourth quarter, the rate was 17.4%.

The national market has been lifted by a return to job growth, although the nearly one million jobs added in 2010 contrasts with nearly nine million lost in the downturn, said Grubb & Ellis Chief Economist Bob Bach.

A number of other markets outperformed the overall market. In the San Francisco Bay area, Palo Alto's office vacancy rate of 9.9% in the fourth quarter was lower than those of most other cities, including San Francisco's 15.5%, according to CB Richard Ellis. The main reason, brokers say, is that Palo Alto is home to fast-growing tech firms.

Elsewhere, CB Richard Ellis said, the financial-market rebound helped pull New York's vacancy rate to 8.4% in the fourth quarter, while biotechnology growth helped reduce vacancies in the middle area of Cambridge, Mass., to 6%, compared with a Boston metro rate of 13%. In the Pittsburgh suburbs of Beaver and Butler counties, growth in energy and technology reduced vacancies to 4%, compared with a metro rate of 11.2%.

I emphasized the Pittsburgh part of the passage. The news is that office real estate is doing better in the suburbs than in the urban core. The not-so-subtle underlying message is that the Creative Class is choosing sprawl over city working. The analysis is superficial at best.

In some ways, the jobs are moving to where the people live. Suburban counties sport most of the population growth in any region. Much of the residential migration is within the region. I'd expect the same is true for the business migration. In terms of attraction strategies, that pattern is important to remember.

If you want more people and jobs in the urban core, then your target demographic/business is currently located outside of the region. Long-distance movers are more likely to appreciate what your city has to offer. Local perceptions aren't going to change. Trying to convince regional suburbanites to embrace density is a waste of time.

I think separating migration incentives into two categories would be useful. Within the city, you want to encourage the residents (or businesses) you have to stay put. You don't want them bolting for the burbs. Retention makes sense on this scale. However, trying to keep people (or businesses) from leaving the entire region is unlikely to work and undermines economic development.

If you want to attract more talent, then you must look beyond the pale. Forget booming Butler County. I'd bet Pittsburgh could attract people from suburban Detroit to live in the city. The flow can go the other way, too. One model I have in mind is boomerang migration:

1. Suburban brat leaves Rust Belt region for Cool City
2. Cool City hipster feels the tug of home and returns to live in the urban core

Yes, I would bet expatriates could repopulate shrinking cities. I'd guess that this is already happening on a bigger scale than anyone realizes.

Turning back to the original subject of the post, a closer look at firm migration holds a few surprises:

In a study released last year, Jed Kolko of the Public Policy Institute of California examined business relocation and homegrown jobs in the United States between 1992-2006.

Although his primary focus was California, he found that, throughout the nation, business relocation across state borders accounts for a very small portion of job loss or creation for individual states.

“Even the places where relocation accounts for the highest share of job gains or losses, it’s still well under 10 percent. Aside from Washington, D.C., it’s under 5 percent,” Kolko told the Press & Dakotan in a telephone interview. “The vast majority of jobs that are gained come from new businesses being born and existing businesses expanding. On the other hand, the vast majority of jobs lost are because of businesses closing or contracting. It’s not because businesses are moving in or out of the state.”

Interstate firm relocation garners all the press. Hence, all the talk about tax policy and right to work legislation. It doesn't pass the sniff test. Proximity matters much more than policy geography. From the same article:

Thus, Delaware; New Jersey; New Hampshire; Washington, D.C.; and Connecticut make up the top five states for job gains due to business relocation from outside their state borders.

How does Kolko explain these figures? He theorizes that states with the highest percentage of losses and gains have large amounts of economic activity that occur near their borders.

“It makes it easier for businesses to move out but also makes it easier for businesses to move in,” Kolko said.

Like people, businesses are risk averse concerning migration. The apple doesn't fall far from the tree. We go where we know. We eschew the road less traveled. Cities don't attract firms so much as they give birth to them. The game is one of job creation, something the suburbs will struggle to achieve.