Research: Drivers of Firm Location

Cities that wish to foster high-growth entrepreneurship should work to improve quality of life factors, increase the supply of talent and expand access to clients and vendors. –What the Best Entrepreneurs Want in a City

The dense urban centres of big cities have never been more important. A recent article from Sydney Morning Herald documented that 24 per cent of Australia’s GDP growth over 2015-2016 happened in a few small census districts in the Sydney city centre.

There are several compounding trends which are dramatically re-orienting cities back to their centres and placing a premium on proximity and “cityness”. One is the changing nature work. Our economy is shifting from manufacturing to higher skilled jobs which achieve greater benefits from locating in dense commercial districts where people can be close to customers, clients, and supporting services.

It is in these dense, mixed use environments, where information is transmitted through both formal and informal networks to create new ideas and new work. Much of this transferring of ideas and knowledge takes place face-to-face either in organised meetings, or during unplanned encounters facilitated by a city’s supporting infrastructure of streets, cafes and public spaces.

Another part of the story is that young and highly skilled workers prefer to work in dense, walkable, mixed use areas that have high levels of urban amenity. It is thought that attracting (and retaining) young highly educated and skilled workers is key to a city’s success since they will be the ones creating new jobs and supporting a city (and country’s) future economy.

This may remind you of Richard Florida’s Creative Class thesis, but it is probably better defined by Joe Cortright’s description of the Young and the Restless.

The Young and Restless—25 to 34 year-olds with a bachelor’s degree or higher level of education—are increasingly moving to the close-in neighborhoods of the nation’s large metropolitan areas.   This migration is fueling economic growth and urban revitalization.

I find this all really interesting and I described some of my intuitions on the spatial dynamics happening in Auckland – Proximity and Integration (The Metropolitan Revolution). Recently I discovered a fascinating study published by Knowledge Auckland which describes some of the the spatial dynamics and agglomeration forces happening in Auckland.

The Drivers of Business Location in the Auckland CBD by Gravitas Research and Strategy Ltd surveys senior executives of 16 medium-to-large Auckland firms located in the CBD. It provides a fascinating window into the geographic and spatial factors that firms in the wider Auckland CBD area value. Here is a breakdown of some of the findings with the quotes in italics.

On Agglomeration:

Proximity to clients and customers is also a key location criteria for all professional services firms, both perceptually and also to maximum efficiencies in terms of getting to and from meetings etc. Locating “in the centre of things” also means it is easier to meet people more often; whether it be a quick catch up coffee, a meeting with a number of people from different organisations, or simply bumping into people on the street – it is easier and less time consuming:

“We want to be in the vibrant CBD where you’re running into, bumping into your clients basically.”

Proximity to amenities:

For most businesses, proximity to amenities for staff – including banks, supermarket, cafes and services such as drycleaners – is an important location decision criterion. (Businesses note that, while it may not necessarily be a criterion specified on a brief to real estate agents, it is typically a key consideration when reviewing shortlisted locations). Indeed, a number of possible business locations (Victoria Park/Wynyard Quarter, Carlaw Park etc) were rejected on the basis of a lack of staff amenities. And for one organisation, the poor access to amenities at their Nelson Street site (and the consequent difficulty attracting good quality graduates because of this) was the key catalyst to locating back into the heart of the CBD on Queen Street.

“Halsey Street is seen as the absolutely western limit, as far as you would want to go. I understand that people at Air New Zealand and ACP find it pretty isolated over there. You’ve got to get in a car to come back to the CBD. It’s too far to walk.”

“A lot of people only think of transport getting to work and back but it’s quite important to staff how quickly they can walk and hit Queen Street or a bunch of other places. It’s a bit of a walk [from Victoria Park]. You can walk it, but it’s the kind of distance where people are going to go ‘no, I can’t be bothered, but now I will have to take my car so I can stop in at the shop after work.”

“Certainly for some people, [the distance to the CBD] would be an absolute turn-off without question. It’s 10 minutes’ walk into town, and whilst that doesn’t sound a lot, when you’ve only got 30 minutes for lunch, you don’t want to spend 20 minutes of it walking – and there is no shelter there either.”

“We have had a quite a lot of negative feedback from tenants in Maritime Square about how long it takes to get back from a meeting in the central city.”

“We found [area around Vector] that it’s just a little bit … a stone’s throw too far from where things are happening, and from the staff’s perspective, all the lounges, restaurants and cafes are just that bit too far away.”

On Staff Attraction:

For professional services firms that rely heavily on being able to recruit high quality graduates (or entice back those young people who have left New Zealand to go on their OE), a CBD location is considered essential to attract staff:

“Our lifeblood are the graduates we recruit from the university and the people we attract back from overseas, particularly from the UK. So we want to be in a location which is going to be competitive from the point of view of attracting talent. There is prestige attached to working in the CBD. One of our competitors in the 1980s was located in low rise in [CBD fringe] and it probably set them back for a decade because it just wasn’t the place where young professionals wanted to be working, when you compare it with a glass tower in the centre of the CBD, close to the water.”

On Cost:

Cost may not be a critical consideration for those committed to an A-Grade location – assuming costs are at market prices. For others, cost and the leasing deal (rent free periods, fit out) are a key consideration. The businesses spoken with had all elected to remain in, or move to, the CBD and so were willing to pay the higher lease costs the CBD attracts for the perceived benefits that the location and office space offered.

Being located close to the Britomart Transport Centre has the strong advantage of allowing businesses to reduce the number of car parks they need, which can be a significant cost saving:

“[When leasing office space], we are noticing a noted decline in demand for car parks. For example, one building we own [near the Britomart Precinct] has 400 car parks. Historically the car parks have all been tightly held. We currently have approximately 40 vacant. That’s quite unusual and it’s predominantly because people are using public transport.”

That is just a snapshot of the content. There are also several discussions about the role that public transport plays in location decisions. The city centre seems like a different place since 2011 when the report was first published, in part I suspect because these demographic and economic forces discussed above are so strongly at play.

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