Companies head back downtown

July 14, 2011, 9:00 AM UTC

In a bid to attract younger employees, more companies are moving out of the ‘burbs and back in to cities.

FORTUNE — Like many companies, Michigan-based Quicken Loans once thought a suburban location made a lot of sense. Space in office parks was reasonably priced, and employees could buy new single-family homes with yards and access to good schools.

But a few years ago, the online mortgage lender began to think about a move to the city. For a technology company, “there is an opportunity cost of not being in an urban environment,” says CEO Bill Emerson. “The youth of America, when they graduate, they’re looking to go to an urban environment.” Top recruits wanted somewhere they could work, live and play and meet other young people. “An asphalt parking lot is not necessarily the best way to do that.”

Lured in part by dirt-cheap real estate costs, Quicken Loans moved 1,700 employees from the suburbs into Detroit last year. It plans to move 2,000 more by March 2012, and is developing the whole downtown Woodward Avenue area with the hopes of luring more tech-friendly companies.

So far, management is pleased with the move. “We believe that Detroit is a tremendous opportunity,” Emerson says. He notes that young Quicken Loans employees have been quick to move into the city. In Detroit they can buy old Victorian mansions for almost nothing. While people with school-aged children generally haven’t moved and are commuting, the energy of a downtown location is still boosting morale.

Quicken Loans isn’t the only company rethinking location decisions. Crain’s recently ran a special report claiming that “like the disco ball, the regional shopping mall and the McMansion, the suburban corporate headquarters campus is losing its charm.”

As fuel costs soar again, as cities clean up their acts, and as corporations trip over themselves to be seen as great places for young, highly-educated professionals to work, urban locations have become more attractive. This urban renaissance raises broader questions: Does location matter? What factors should a company consider when thinking about moving?

Young and single vs. settled with a family

In general, suburban or rural locations are cheaper per square foot, have lower taxes, ample parking, and don’t require higher salaries for employees to feel reasonably compensated. But for companies looking to recruit younger people, all those factors have to be weighed against the reality that there is nothing hip about the ‘burbs.

Lisa Jackman, a recruiter, works with many financial firms, including Warren, N.J.-based Chubb (CB). “Chubb is an amazing company but they lose people because of location all the time,” she says. She points to a recent position for an internal consultant. Management wanted a McKinsey or Bain-type alum but was paying in the low six-figures, a level that would attract someone with two to three years of experience at those firms.

“You’re kind of young at that comp level,” Jackman says. “When do people want to go to Warren, N.J.? They want to go to Warren, N.J. when they’re ready to settle down.”

On the other hand, for employees looking to settle down or parents who’d like great schools, Chubb is a wonderful place to work. “They attract a very stable workforce,” says Jackman. “They hold on to people.” While “it’s harder for them to attract 20-somethings, it’s easier to attract and retain some of the senior staff.”

To commute or not commute?

In a down market, Jackman notes that more older workers are willing to commute into cities than in the past, which would seem to point the decision tree more toward an urban location.

Terry Preuninger works for Oncor, a Dallas-based energy delivery company. He counsels companies relocating to or within Texas on which locations would best serve their needs. In general, he believes (based on various studies) that workers are willing to travel 30-35 minutes for a job — a number that has gone up a bit in recent years, though may go down again with gas prices.

But Preuninger is also beginning to see a lot more interest in central business districts, partially for mass transit reasons, and also because he says younger workers want to “walk to work,” and want to “access restaurants and shopping easily in walking distance, and they’re looking for more social interaction, as opposed to a half acre in the suburbs where I have my space.”

Like follows like

A desire for social interaction — even with potential competitors — drives some companies to move to areas with industry clusters. Sander Daniels, co- founder of, which helps businesses find and book local service professionals, faced a decision early on to locate his company in Washington D.C. — where three of the four co-founders were working at the time — or in Silicon Valley.

They chose to move to California for several reasons. “We needed to sell our dream to people we wanted to recruit into the company, angel investors, VCs, and ourselves,” Daniels says. Being part of the Silicon Valley culture would help there. “We also realized that building a company is hard. We knew that being in Silicon Valley would keep the fire burning,” he adds. “We can look up to Facebook and Google just down the street. We go to parties and learn new things from interesting people. We revere Silicon Valley’s elder statesmen and hope that’ll one day be us.”

When location isn’t a factor

Ironically the high-tech world Silicon Valley has helped bring about makes location matter less than it used to. Millions of people already work from home or on the road with their laptops and cell phones — meaning they don’t care if corporate headquarters are in urban, suburban or rural locations. And the rise of shared office spaces means that smaller companies can use whatever kind of location they want.

Shawn Hermanson owns Buzz Revolution, a Denver, Colo.-based marketing firm. He had been working out of his house and meeting clients in coffee shops, but the noise meant he’d “never get anything done, and my clients were getting irritated.” So he began renting office space from a company called Office Evolution, which has nine locations in the Denver and Boulder area.

Now, when he wants to impress young, hip, clients, he meets them in the downtown Denver office. When he’s meeting more established clients, he chooses the suburban location nearest their homes or businesses. One gentleman raved about his Boulder office, noting how close it was to his house. “I’ve told the truth,” Hermanson says — that he thinks location matters, but that doesn’t mean you only have to choose one.