America’s biggest cities have seen a resurgence as employers and residents show a growing preference to live and work in urban areas. Experts expect the trend to continue—and even spill over into midsize and small cities.
Growth in the office market offers a lens into where employers are expanding or shrinking. Since 2010, demand for office space has been rising faster in cities than in the suburbs, at least when measured by rent growth. Office rents sought by landlords in urban areas rose 18.7% in the past four years, based on end-of-2014 estimates, compared with just 3.3% in the suburbs, according to real-estate research firm CoStar Group Inc.
As U.S. job growth picks up steam, many experts expect cities to continue to punch above their weight, in part because companies in some of the fastest-growing industries, such as technology, are showing an urban bent. Uber Technologies Inc., Twitter Inc. and Airbnb, for example, are expanding in San Francisco, not in the nearby suburbs of Silicon Valley.
In the Northeast, pharmaceutical companies such as Roche Holding AG and Pfizer Inc. are leaving suburban-style campuses in New Jersey and Connecticut for Manhattan and Cambridge, Mass., respectively, as they embrace the theory that clustering scientists in a dense area can foster scientific discoveries.
These location decisions are being driven largely by job recruiting, say experts. Companies seeking to lure the best and smartest young college graduates say the right location gives them an advantage over other employers.
“They’re going where the talent is, and the talent is in the urban core,” said Jason Hickey, chief executive of Hickey & Associates, a firm that advises corporations on where to open offices.
Not that the suburbs are dying—far from it. More Americans live in suburbia than in cities, and that isn’t likely to change. But cities have grown slightly faster than their surrounding areas for the past four years.
In the latest period tracked, between mid-2012 and mid-2013, the overall population of cities rose 1.02% compared with 0.96% in the suburbs, according to an analysis of Census data by the Brookings Institution.
These recent trends reverse decades in which suburbs grew faster than cities.
Just why Americans are falling in love again with urban areas is the subject of debate. Many experts believe it is a generational shift, in which the children of baby boomers—many of whom were raised in the suburbs—want to live differently than their parents, in walkable neighborhoods full of night life and restaurants.
Others say it is a temporary result of the hangover from the housing bust, as the young put off homeownership amid stringent lending standards, but ultimately will move to suburbs for more space and better schools.
The truth may lie in the middle, said William Frey, a demographer at Brookings.
“It’s still, in part, a postrecession phenomenon, involving young people hanging tight,” Mr. Frey said. But, he added, “I don’t think the eight or nine decades of suburban growth has been turned on its head.”
Whatever its cause, the trend is spreading to midsize cities, such as Nashville and Cleveland, where a long-struggling downtown is beginning to draw residents seeking city life without the high cost they would face in New York or Boston. Developer Doug Price, for example, once focused on apartments in the suburbs. Now he is the biggest converter of downtown Cleveland office buildings to apartments.
As urban demand grows, so does supply. With construction spending projected to rise by about 10% in 2015 over 2014, thanks largely to residential and commercial real estate, according to consultancy Rider Levett Bucknall, there are fears of overbuilding in some cities.
David Zucker, a Denver developer who is chairman of the Colorado State Housing Board, said urban demand is “unambiguous,” but developers have become overzealous in his city. “It is abundantly clear that we are headed toward oversupply and therefore lessened rent,” he said.
Yet that, in turn, could make downtowns even more attractive to young people.