While residential areas of cities have expanded and responded to market forces, fashions and favor over the years, business districts had largely remained static. You were either in or you were out. The city center held.
But the recent influence of tech and creative firms, and the preferences of Millennial workers, are now changing the geography of our cities, creating secondary or alternative commercial zones next to or nearby existing business cores.
Taking the lead from artists, designers and small businesses, a variety of businesses are following cheaper rents, character buildings and food trucks to create these new next-to-center zones. They’re also bringing service industries with them, from dry cleaners to coffee carts.
“This is happening for many markets across the board in the U.S.,” says Christian Beaudoin, JLL’s Director of Research in the US. “Chicago is a wonderful example of development happening just outside the core area of the Loop. In Fulton Market and River West you have a mixed-use, creative feeling, where you could go outside the core and get a lower-cost, former warehouse to convert into a really nice office space.”
Such next-to-center development was initially seen in Portland, Oregon, which grew as the destination of choice for young, creative people as other cities, such as San Francisco, became unaffordable for them. Creative agencies followed the art galleries and, before long, staff at global headquarters could rush out for lunch at a Whole Foods in a former brewery building.
A new look office space
The move towards character buildings and recycled architecture has been an important part of this shifting of business districts. When looking to differentiate themselves from the mainstream, tech businesses can distinguish themselves from traditional corporate environments by shunning the glass and steel, in favor of more historic looking buildings.
“In Chicago, 600 West Chicago Avenue is a wonderful case study,” says Beaudoin. “It was an old catalogue warehouse. A few design firms moved in and then Groupon moved their headquarters there. Now there are hedge funds and trading firms there as well. Over 10 years it has evolved from a fringe building to the place every tech and trading firm wants to be.”
Of course, this kind of spike in demand does not come without consequences. What was once the cool alternative can rapidly become as popular as the original business district. The luxury condos and more standard architecture often follow, although architects and developers often look to incorporate the higher ceilings and open spaces of converted buildings within their designs.
“We’re at the point in our development cycle where many fringe developments are of equal or greater value and just as expensive as core properties,” says Beaudoin. “This is true in Fulton Market in Chicago, and actually, in Minneapolis they have run out of cool buildings and developers are now building brick-and-timber distressed lofts to look as if they are 100 years old. The search for buildings with character has driven development to an entirely new level.”
Infrastructure improvements open up the area
Access has also been a major driver of this kind of development, with new infrastructure often attracting businesses to areas that may previously have been thought of as inconvenient. A new Green Line “L” station in Chicago’s Fulton Market made the area more attractive in much the same way that the extension of the 7 train line to Hudson Yards helped development in the Manhattan’s Upper West Side. Cycle lanes, cycle share schemes and bike parking won’t drive the move, but they will certainly follow it.
The balance of business to housing will vary between cities. In Portland’s Pearl District, for example, mixed-use developments put Millennials among the offices, commerce and galleries, often in the same building. But amenities will be key whether workers are living nearby or not. Business will look to draw in staff with rooftop decks or private bars, but the right mix of external entertainment space will keep them sweet.
“In Dallas, they are building the types of amenities you would see in tech companies into corporate campuses, such as health clubs and cafes,” says Beaudoin. “You can no longer just give an employee a cubicle and hope that they are satisfied. You must have amenities and dining and entertainment options to attract people to your workplace.”
Of course, developing outside of the downtown business core is not a magic formula for success. In order for it to work, the downtown has to be thriving already and you must distinguish the new submarket with unique features. Detroit, for example, is now recovering from its challenges and its Midtown is a good example of a secondary market just outside of the core doing well, according to Beaudoin. Nashville is another city poised for further growth beyond the core: “It currently has the lowest office vacancy rate in the nation, and it is ready for new development east of the river.”
“It’s not necessarily ‘build it and they will come,’ Beaudoin concludes. “It’s got to be compelling beyond any other place. There is still risk and some markets may struggle with it, depending on their growth rate.”