CBRE EA BLOG Deconstructing CRE

Why firms choose “edge cities”: Arlington and Queens

Nov 21, 2018, 11:34 AM by Bill Wheaton

U.S. cities have clearly become polycentric: many older CBDs now co-exist with numerous suburban “edge cities.”[1] Among these subcenters, two considerations mediate the competition for employers: the cost of real estate and the cost of labor. The former is simple; office space is up to 50% less expensive in edge cities than in CBDs. Edge cities’ labor advantage is more complicated and worth a bit of explaining. Consider: Suburbanites commute into the CBD and, passing edge cities on the way, think wistfully how they’d be at their desks already if they worked here. Firms act on this, relocating from CBDs to these subcenters and putting up the signs that say just what the commuters are thinking—while offering a lower wage.

Many studies confirm the existence of an urban “wage gradient” just like the pricing gradient for land and real estate. In subcenters 15 miles from the CBD, wages for equivalent workers can be 10-15% lower. Of course—such workers enjoy round-trip commutes that are 30-60 minutes shorter. Time is money! So it makes perfect sense not to locate in downtown D.C. or Manhattan—particularly where these facilities are not moving goods around, but rather are using lots of labor for design, planning and business development.[2]

This “edge city” strategy works best when the residential areas surrounding a subcenter have diverse housing that’s suitable for modern workforces. Long Island has both tony North Shore suburbs and numerous working- and middle-class communities to the south. Similarly, one finds a great range of housing south and west of Arlington, Va.—perfectly suited to all levels of a management workforce. Even better, with millennials (at least for the moment) still insisting on living an urban life downtown, closer-in “edge cities” connected by transit also offer good reverse-commuting for dye-in-the-wool urbanites. To urban economists, Arlington and Long Island across the East River would seem perfect choices.

Of course, locating up to 25,000 new employees in each of these “edge cities” will certainly have its effects on local real estate. While rents and commercial values in Queens and Arlington will definitely rise, the broadest impacts will occur in a number of residential areas radiating out from these two sites. Living out on Long Island or beyond the beltway running southwest of D.C. just became a whole lot more attractive.

 


[1] McMillen and Smith, “The Number of Subcenters in Large Urban Areas”, Journal of Urban Economics, 53, 3,  (2003).  

[2] Timothy and Wheaton, “Intra-Urban Wage Variation, Employment Location and Commuting”, Journal of Urban Economics, 50,2  (2001).

 

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