Irrational Exuberance in Site Selection

“Our organization and others need to do a better job of researching and documenting the competitive cost advantages of rural America,” was how Rand Fisher head of the Iowa Area Development Group (www.iadg.com) summed up his observations from doing site selection calls in Chicago. His words made an awful lot of sense as he contrasted operating costs in Iowa with Chicago.

“As we made calls in the Chicago loop, urban fringe and suburbs, we observed a tremendous amount and diversity of investment. We saw some very imaginative and incredibly expensive office and housing investment in the loop. We observed a lot of totally uninspiring, costly warehouse and manufacturing space. When we traveled to the suburban office parks, we also witnessed unbelievably expensive subdivisions filled with “look alike” homes. As I contemplated all this building and the extraordinary costs of the urban environment, I thought about Greenspan’s description of “irrational exuberance.” I pondered the rationality of all this metropolitan centered construction and the likelihood for financial return on investment. I thought about all the competitive advantages Iowa offers.”

“Later in the day while stuck in bumper to bumper traffic, I wondered out loud about the urban concentration and costly investment my development partners and I had witnessed. They readily concurred. In fact, they used terms like “outdated”, “overrated” and “mindless” to describe the obsession associated with metropolitan location. They questioned the sustainability of such investment given the global competition of a new era.”

Fisher is correct in his assessment. The increasing cost disparity between a high cost location like Chicago compared to rural Iowa will eventually be realized by more people and companies, ultimately resulting in shifts in site selection decisions.