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Matt Cutts says that it is now roughly the same (subdomain vs. directory). He goes on to say that Google has changed the way they look at sub-domains and now can consider the overall domain as a unified entity. The video is linked to this post. Now it just depends on how much you trust Matt Cutts.
Thanks, Kyle. I appreciate the thorough response. These are great points, many of which, I tried to make without success.
Everyone tried to keep the site together, and indeed the majority of the concern is definitely for the defecting office, but this particular branch seems pretty determined to go its own way. Some SEO companies can be so persuasive...top 3 ranking for every keyword under the sun...guaranteed. 
So, now the main goal for the group is to ensure that the rest of the branches in the organization to not have any negative SEO impact as a result of this switch.
Thanks again.
Thank you for your response. Just to be clear we are pointing all redirects from the deleted pages to the current (original) site, not to the new site.
Thanks
We have a client with a large, multi-city home services business. The service offerings vary from city to city, so each branch has it's own section on a fairly large (~6,000 pages) web site. Each branch drives a significant amount of revenue from organic searches specific to its geographic location (ex: Houston plumbers or Fort Worth landscaping).
Recently, one of the larger branches has decided that it wants its own web site on a new domain because they have been convinced by an SEO firm that they can get better results with a standalone site.
That branch wants us to remove all of its content (700-800 pages) on the current site and has said we can 301 all inbound links to the removed content to other pages on the existing site to mitigate any loss to domain authority.
The other branch managers want to know if removing this city-specific content could negatively impact search rankings for their cities. On the surface it seems like as long as we have proper redirects in place, the other branches should be okay. Am I missing something?
We have a client in our area that offers a multitude of home services -- plumbing, HVAC repair, landscaping, etc. -- out of one physical location. It makes it difficult for them to rank highly for all of their services in local search since many of the competitors that rank highly only offer one of the services that they do.
They have come to me asking if they could create a Google place page for each service by making imaginary suites for their main address. So, for example, plumbing would be located at 100 Main Street, Suite A; and HVAC repair would be located at 100 Main St., Suite B; etc.?
Seems like this is either a great idea or could get you into some Google trouble. Has anyone experienced anything similar?
Thanks
Matt Cutts says that it is now roughly the same (subdomain vs. directory). He goes on to say that Google has changed the way they look at sub-domains and now can consider the overall domain as a unified entity. The video is linked to this post. Now it just depends on how much you trust Matt Cutts.