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April 28, 2008

Richard Florida

Cities and Suburbs

« Mega-Regions of the Future-Past | Main | Who's the Typical High-Tech Entrepreneur? »

Felix Salmon reports on the real estate panel at the Milken Institute's Global Conference, highlighting this interchange between Sam Zell Chairman and CEO of the Tribune Company and Bobby Turner of Canyon Capital Advisors.

Turner, channeling the likes of Ryan Avent and Richard Florida, said that consumer prefences are going to move away from the suburban lifestyle as transportation costs soar. Zell agreed, pointing to enormous growth of housing in what he called "24/7 cities", putting a lot of that growth down to the societal deferral of marriage. But as cities become ever more expensive and the suburbs become ever cheaper, he was asked, won't corporations move out to the suburbs? No. Motorola rented 200,000 square feet of office space in downtown Chicago last year, he said, even as they have over half a million vacant square feet not far away in McHenry county. If the employees are moving to the cities, then the companies are going to have to follow suit.

Yep, they sure are.

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Gary Dare

Actually, the Motorola facility in Harvard, IL (which was to have been the worldwide headquarters of their cellular phone division) was finally sold three years ago after being mothballed for nearly five years. Employees were coaxed and prodded to move out there, from the mobile division's main facilities in Libertyville, IL (where many people took advantage of a Metra commuter train out of the city).

As a disclaimer, I was a member of Motorola's corporate research labs located near O'Hare. Now you know the Chicago connection in many of my previous postings.

MPS

I don't know if was Sam Zell or Felix Salmon who is saying it, but Motorola's Harvard, IL facility is nowhere near Chicago. Calling it "not far" is not accurate. It is over 70 miles from Harvard to downtown Chicago, and is also 70 miles from Milwaukee and only about 35 miles from Rockford, IL. Even to the outer edges of Chicago's established upper-middle-class suburbia like Schaumburg (Motorola's HQ) is on the order of 40-50 miles. Even calling Harvard "exurban" would be a stretch. This would be like calling Culpeper, VA "not far" from Washington, DC. Even though technically Harvard and Culpeper are in Chicago's and DC's metro areas, respectively, they are at the very extreme fringes. A few super-commuters don't change that.

However, the broader theme mentioned does warrant concern about whether jobs will follow the far-flung, housing bubble-induced exurban subdivisions that simply had no reason to exist other than the erstwhile glut of cheap credit. If you live in southeastern Loudoun County, VA or Southeastern McHenry County, IL, these were pre-bubble housing growth areas and there were already budding job centers nearby (Crystal Lake, IL is not far from tech jobs in the Schaumburg area; Sterling/Ashburn, VA are near large AOL and Verizon operations close to Dulles Airport). But I don't think you are going to see employers chasing workers who chose to live 30, 40, 50 miles away from established job centers, even suburban ones. So I don't think you're going to see much in the way of office parks or high-tech labs at the outer edges of exurban bubbles. If anything, high gas prices incentivizes workers to stay near or move to denser job clusters. This means that those inner-suburban neighborhoods which haven't taken as hard of a beating in housing values as the exurbs will still continue to hold their value and be better investments - so workers probably won't want to stray too far away from their respective cities' beltways. Those high-quality suburbs located between older downtown job centers and successful, established, pre-bubble suburban ones will be best positioned - so look for more housing appreciation in 'burbs like Elmhurst and Park Ridge near Chicago, and Vienna and Rockville near DC. I'm really worried about those large, 4,000-square-foot, $500,000 vinyl boxes in outer McHenry and Prince William Counties.

Gary - As a Chicago native, I have heard similar stories from many friends relatives who have worked for Motorola in the Chicago area (some have moved onto other companies such as Lucent and Tellabs, others have stayed with Motorola but moved to other cities like Fort Worth, others have moved both company and city). Most didn't stray too far from our families' and friends' "home bases" in 'burbs like Skokie, Schaumburg, and Naperville. No one has ventured further than Bartlett or Grayslake in terms of purchasing a home.

The City Gal

Dr. Florida,

Since I moved to Richmond Hill (from Toronto) I have been debating this a little. As you know, many companies (mainly technology, engineering and consulting) moved to northeast of Toronto (HWY7/404, corner of Markham/Richmond Hill/Thornhill) a few years ago. There are a lot of people employed by these firms now. Some, live in the area (like I moved) and some commute from Toronto. However, those who are commuting from Toronto are reconsidering their location. They have to endure traffic, pay the bigger property tax (or rent) and work outside the city?

Many are moving out of the city for this reason. At the same time, Toronto suburbs are moving toward better public transportation and community services, while real estate is not as expensive as the city.

What do you think?

MPS

"City Gal" - could it be, that for those jobs that are not critically linked to a downtown location, that those will remain in certain established near-city suburban job nodes? Not far-flung exurbs further up 404 like Aurora, but the Markham/etc. area that you mention?

I'm curious as to how you would characterize Markham's socioeconomic role in the Toronto region. My impression is that it is a suburb geared towards "edge city"-type upper-middle-class jobs (the tech/engg/consulting ones as you mentioned) similar to established suburban job clusters you find in the US like Fairfax County, VA and Irvine, CA. I've also noticed a very high Asian immigrant component to Markham - is this a place that attracts high numbers of upwardly-moblie immigrant families looking for good schools and lower costs of obtaining a single-family home?

Figuring out public transportation in these areas is, I think, going to be critical. Not all jobs are moving to downtown, and any jobs that are located in far-flung exurbs aren't going to cluster enough any time soon to warrant significant investments in road/transit infrastructure (especially with gas prices they way they are). These in-between edge cities are going to continue to contain many high-quality jobs. Perhaps this is a US-centric point-of-view, but Toronto isn't radically different from US metropolitan development patterns.

My brother has experienced what you have described in the Chicago area: live in the city and commuter to a suburban job cluster (he is in finance with a global agricultural/construction vehicle company). However, he has found that rents near some of those suburban job centers are just as high as the ones in the city (our US property bubble has distorted rents-vs.-mortgages, so this may not apply to Canada as much). So he has decided to maintain living in the city (as a hedge against rising gas prices, since he will have to commute by car regardless, he has just purchased a hybrid vehicle). If suburban job clusters can meaningfully implement good transit solutions, then perhaps there is hope that these areas will urbanize better. Is there anything bold being proposed or operating, like perhaps an intra-cluster shuttle bus, perhaps connecting with regional commuter rail and/or bus rapid transit lines?

Whitney Gunderson

How much subsidy money can I get from the state of IL and McHenry County if I come up with a plan to fill the empty space? :-)

The City Gal

MPS,

You are right on the money!

There are many skilled 1st and 2nd generation immigrants (educated uppermiddle class) living and working in these areas, and there are lots of great schools (one of which just won a robotics competition in US, I think).

The transportation system is very well connected with the one in the city and in fact, a newly constructed train station will be commissioned soon (will take you to the city centre in 15 minutes).

How these edge-city neighbourhoods have florished is very interesting to me.

I mentioned this to Dr. Florida once, that the area's voting trend has also shifted from suburban-conservatism to urban-liberalism in the past 5 years (always a big indicator for me)

CSD

Whitney:

No matter what amount IL gave you, IN would give you more.

As the crow flies, Motorola's HQ in Schaumburg is under 30 miles from downtown Chicago.

Thank you Rod.

CSD

Gary Dare

Yes, I believe that the distance from downtown Chicago (Michigan Avenue and Chicago River, by the Tribune and Wrigley buildings) to the Motorola HQ is about 30 miles. My former daily commute from Evanston along Golf Road was 25 miles in each direction.

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