Hub-And-Spoke Office Model Has Big Companies Seeking Out Smaller Cities

The coronavirus pandemic has left many Americans — especially those living in major cities — wondering why they’re making their homes in expensive urban centers. But they are not alone.

Companies are also rethinking where they keep their offices. As their older employees search for new suburban homes and young professionals let their leases expire, companies are weighing whether a sprawling urban headquarters still makes sense. Some are considering a transition to a hub-and-spoke office model, planting offices in suburban areas and smaller cities around the country.

Switching from a single headquarters to a cluster of offices can mean lower costs for office space and access to a wider talent pool. And for employees, working in these smaller cities can mean a lower cost of living and often, better quality of life. At a time when everybody wants a little more breathing room, smaller cities offer the ability to have more space.

In the last few years, some companies made moves to smaller cities. Now, those moves look prescient. Payroll processing giant ADP made headlines in 2018 when it leased out 243K SF over 10 floors of Five City Center, a new office building in downtown Allentown, a city of 121,000 in Pennsylvania’s Lehigh Valley, set away by almost 50 miles from the dense corridor of towns stretching from Philadelphia to New York.

The Allentown office has since become ADP’s largest regional inside sales hub, with 1,000 employees. Executives at ADP, which is headquartered in Roseland, New Jersey, cited the Lehigh Valley’s potential for growth as the main reason for their move, and as employees filled the new downtown offices, they felt that mission had come full circle.

“It’s not tax credits, it’s not the weather,” ADP CEO Carlos Rodriguez told the Allentown Morning Call. “It’s ‘Can we find the right talent?’ And that’s exactly what we have found here.”

The move to small cities can also release the financial burden that many companies feel even in places outside the city, like the suburbs of New York City. According to research from real estate developer City Center Investment Corp., which owns Five City Center, Class-A office space in the Lehigh Valley costs 40% less than Class-A office space in northern New Jersey, while professional labor costs 26% less on average in the same area.

ADP’s move to Allentown followed a local effort to reinvest in the heart of the city, which had suffered a decades-long decline.

Beginning in 2014, a $600M effort in local and state funding breathed new life into downtown Allentown, transforming a graying city block into a thriving business hub with a 10,000-seat multipurpose arena, an integrated mixed-use development that includes retail, dining, apartments, health and wellness, hotel and commercial office spaces, plus two historic buildings and structured parking.

The revitalization process of downtown Allentown received acclaim in city planning circles, winning the Urban Land Institute’s Global Award for Excellence in 2017. 

Some companies have seen enough value in these small cities to move their entire workforces there during the pandemic. Iota Communications, a publicly traded wireless communication and data analytics software company, announced on June 23 that it would be consolidating its existing offices in Phoenix and suburban Pennsylvania into an office on Hamilton Street, a major retail and office thoroughfare in Allentown.

“We were attracted to Allentown’s big-city feel with all the small-city benefits,” Iota Communications President and CEO Terrence DeFranco said in a statement. “In addition, the quality workforce in the region and close proximity to New York City and Philadelphia markets make this an ideal location as we are in a growth mode and many of our services have really taken on a new importance due to COVID-19.”

Officials in Allentown are seeing the current crisis as an opportunity to take in residents moving out of larger, urban hubs like Philadelphia, New York and New Jersey, but they also see it as a chance to hang on to more homegrown talent coming out of the many colleges and universities in the Lehigh Valley, including Lehigh University, Lafayette College, Moravian College and Muhlenberg College.

“For Merrill Lynch and companies like it, locating our offices in an energized city environment with walk-to-work opportunities like downtown Allentown is critical to attracting and retaining talented employees and expanding our business,” said Chris Reber, market executive for Merrill Lynch, which leases space in the Tower 6 office building on Hamilton Street.

The low cost of living in Allentown may be especially important to the more than 10,000 yearly graduates of Lehigh Valley colleges since they are facing a tougher job market than classes have faced in a decade.

Houses in and around Allentown are in demand as well. Jack Gross, president of the Lehigh Valley Realtors Association, told the Morning Call that he is hearing from agents that a large volume of people from the New York metropolitan area are moving to the Valley.

As part of the city's revitalization efforts, nearly 900 upscale apartment units in amenity-rich buildings have been added to the city's stock, attracting millennials and empty nesters alike.

“I think the city has made it homey to me,” said Kelly Schmidt, a resident of one of the new apartment communities, 520 Lofts. “A lot of these businesses weren’t here three years ago. I felt like it was a perfect fit to start fresh.”

City Center Investment Corp. is also hoping that offering a bit more breathing room than a larger city can bring in new residents and keep them there to raise families. While Allentown locals can hop on public transit to cities like Philadelphia and New York, they can also drive to hiking or skiing within half an hour, or bike along the Saucon and D&L Rail Trails just a few miles away.

“We’re already seeing inquiries from companies and new residents, and we know that the business activity is following,” said Jill Wheeler, City Center Investment Corp.'s vice president of sales and marketing. “There may be a silver lining in the current crisis for all of these smaller cities throughout the Northeast.”

This feature was produced in collaboration between the Bisnow Branded Content Studio and City Center Allentown. Bisnow news staff was not involved in the production of this content.