Rite Aid Inc., the drugstore chain that ranks 132nd on the latest Fortune 500 list of the largest U.S. corporations by revenue, announced last month that it’s adopting a “remote-first work approach” for corporate staff. At the same time, it’s shutting down its headquarters in a suburb of Harrisburg, Pennsylvania, and opening a new “Enterprise Headquarters and Collaboration Center” in Philadelphia.
The new Rite Aid HQ will be located on the second floor of a four-story Bjarke-Ingels-Group-designed building (with “a facade that curves like the bow of a ship”) in the Philadelphia Navy Yard, a ship-building-facility-turned-office-complex that is near the airport and next to a nice park, and should have enough space to accommodate the innovation center — a prototype store — that Rite Aid wants to build close to its HQ.
It’s just one company, with a chief executive officer who even before the pandemic was living far from headquarters in Virginia Beach, Virginia. But it does seem like a sign that the post-pandemic trajectory of corporate headquarters and office space in general probably won’t be as simple as a shift from cities to suburbs or small towns.
Early in the pandemic, the premium paid for urban office space relative to suburban office space declined markedly in the U.S., especially in transit-dependent cities. That made sense, given that those who could were working from home and avoiding public transportation, and most of the activities that make cities attractive were shut down or severely restricted because of COVID-19.
With cities springing back to life, the urban office market has gotten livelier, too, although commercial rents are still down and vacancies up in places like San Francisco and New York. The early-pandemic view that cities were uniquely vulnerable to COVID-19 has faded in the face of overwhelming evidence that they aren’t. But the widespread pandemic-induced epiphany that remote work is practical and in many cases preferable to the office, especially for those with long commutes, isn’t going to be reversed. The dynamics of the white-collar workplace have likely forever been altered, and since most Americans live in the suburbs, the assumption that the remote-work shift might be better news for suburban office markets than ones downtown doesn’t seem unwarranted.
For corporate headquarters, though, there are lots of countervailing considerations. If the HQ is mainly a place for occasional convening, as Rite Aid’s apparently will be, then a big city with lots of amenities and a major airport makes much more sense than a nondescript suburb in the country’s 98th-biggest metropolitan area. If it’s also meant to be a place where lots of highly skilled, highly paid people sitting at computers and gathering in meeting rooms create the products your company sells — as with, say, financial firms in New York City and technology companies in the San Francisco Bay Area — then even if they don’t come into the office every day, the headquarters will need to be near where lots of those kinds of people live. This again favors major metropolitan areas, and in places with commuter-rail systems it favors downtowns more specifically, because they’re easier for people from all around the area to get to.
There’s a long history of companies trying out different models for their corporate headquarters. Manufacturers have often started out with their HQ next to the factory, only to see their CEOs decide to move closer to customers or investors or wherever they wanted to live. General Motors Co. has officially been headquartered in Detroit for most of its existence, but from the 1920s into the 1950s it was actually run from a building just south of Columbus Circle in Manhattan, to which long-time chief Alfred P. Sloan Jr. reportedly commuted by car from his Fifth Avenue apartment for most of the year (very on-brand!) and by train and subway from his house on Long Island in the summer (not on-brand!). The headquarters of General Electric Inc. has moved over the decades from Schenectady in upstate New York to midtown Manhattan to suburban Connecticut to, in 2016, Boston’s Fort Point neighborhood.
At GE in 2016, then-CEO Jeff Immelt’s plan was to surround himself and his executive team with lots of highly paid people sitting at computers and gathering in meeting rooms in an attempt to be more like a technology company. After he was pushed out in 2017, his successors scaled things back to an HQ staff of about 250. These days, that’s known as an “executive headquarters,” usually located in a place with a good airport, fancy restaurants and easy access to lawyers, consultants, investment bankers and other service providers. Several high-profile corporations from smaller Midwestern cities — Archer-Daniels-Midland Co., Caterpillar Inc., Conagra Brands Inc. — have established such bases in Chicago in recent years. So did the extremely high-profile Boeing Co., formerly of Seattle, a few years after it bought St. Louis-based McDonnell-Douglas in 1997.
Things of course haven’t gone too well lately for Boeing, and Reuters reports that its Chicago HQ has become a “ghost town” as top executives spend their time closer to the company’s main manufacturing facilities in South Carolina and Washington state. In reaction, urbanist Aaron Renn wonders if the executive HQ is a bad idea for “engineering-based companies” that risk losing their competitive edge if their executives spend too much time hanging out with consultants and investment bankers and eating in fancy restaurants.
For many companies with dispersed operations, executive HQs do make sense, though, and pre-pandemic trends in corporate HQ location seem more likely to continue than not. What are those trends? In 2018, Patrick Adler of the University of California at Riverside and Richard Florida of the University of Toronto looked at the headquarters of Fortune 500 companies for several years between 1955 and 2017 and concluded that access to talent, airport connections and metropolitan-area size seemed to be the best explanations for why large companies located their headquarters where they did.
Adler and Florida also recorded some major regional shifts, with the Great Lakes, and to a lesser extent the Northeast, losing headquarters while the South and West gained. But in contrast to research from earlier decades that found a trend toward increased geographic dispersal of corporate headquarters, by 2017 the Fortune 500 HQs were more concentrated than in 1955. The New York metropolitan area was down one HQ over the period (from 81 to 80), but the No. 2 San Francisco Bay Area (including the San Jose metro area), had 52, compared with the 46 based in Chicago in 1955, when that city ranked second. In 2017 the top nine metro areas (top eight if you combine San Francisco and San Jose) were home to more than half of all Fortune 500 companies; in 1955 it took the top 11 to get to a majority.
None of this reflects whether the headquarters are in cities or in suburbs, but there was certainly a lot of anecdotal evidence of corporations ditching suburban office parks for downtowns in the years before the pandemic, after having done the opposite for most of the second half of the 20th century. COVID-19 may have halted that shift to the city, but there are few signs that it has reversed it. One striking statistic: three of the six U.S. office markets with the highest vacancy rates as of the middle of this year were in New York’s suburbs, according to commercial real estate services provider Jones Lang LaSalle Inc., while New York City’s vacancy rate was sixth-lowest of the 54 markets JLL tracks.
So yes, corporate headquarters may look different, and possibly be smaller, in the post-pandemic era. Demand for office space in general may be lower, too. But HQs of all kinds will probably keep gravitating to big cities.
Read More: Opinion: Corporate headquarters will still gravitate to big cities