Bill Wheaton | December 2018
US cities have clearly become “polycentric” with older CBDs now co-existing with numerous suburban “edge cities”. The spatial competition between all these subcenters, for the location of employers, is driven largely by two considerations: less expensive real estate and less expensive labor. The former is rather obvious as office space is up to 50% less expensive for firms in edge cities as opposed to CBDs. The labor advantage is more complicated and worth a bit of explaining. Think of the following: suburbanites commuting into the CBD look wistfully at “edge cities” that they pass on their way in and thinking “if only I worked there I would already be at my desk”. Firms are actually able to translate such thoughts into action. Move out of the CBD to one of these subcenters, put up a sign saying just that – but then offer a lower wage!
There are lots of studies showing the existence of an urban “wage gradient”, just like that for land and real estate. In fact wages at subcenters say 15 miles out from the CBD can be 10-15% less (for equivalent workers). That’s because those workers enjoy commutes that are 30-60 minutes less each day (round trip). Time is money! So it makes perfect sense not to locate in downtown D.C. or Manhattan. Particularly with facilities at these sites that will not be moving around goods, but rather using lots of labor to design and implement planning and business development.[i]
This “edge city” strategy works best when residential areas around a particular subcenter have the diverse housing suitable for modern workforces. Long Island has toney north shore suburbs as well as numerous working and middle class communities just to the south. Similarly, going south and west from Arlington, one finds a great range of housing – perfectly suited to all levels of a management workforce. But these two locations are 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 an urban economist, Arlington and across the East River in Long Island 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 likely occur in numerous residential areas that radiate out from these two sites. Living out on Long Island or beyond the beltway running SW of D.C. just became a whole lot more attractive.
[i]McMillen and Smith, “The Number of Subcenters in Large Urban Areas”, Journal of Urban Economics, 53, 3, (2003).
Timothy and Wheaton, “Intra-Urban Wage Variation, Employment Location and Commuting”, Journal of Urban Economics, 50,2 (2001).