Suburban office challenges CBD office
Real Estate - AUGUST 23, 2017

Suburban office challenges CBD office

by Andrea Waitrovich

Demographics favor suburban office demand, according to a report by Marcus & Millichap, in a shift from recent years.

Nearly two-thirds of households already reside in the suburbs, fostering demand for office space in suburban markets. Shorter commute times entice many workers to seek employment in suburban office locations.

Suburban companies are seeking spaces in prime locations to cater to the lifestyle that many young professionals enjoyed in CBD areas. As a result, many suburbs are transforming into their own urban environments with walkability, entertainment, and retail and dining options.

Suburban office construction has heightened during the past two years but remains far below the completions recorded during the previous cyclical peak. Minimal completions and steady absorption signal the potential for further vacancy improvement.

Healthy demand also has spurred rent growth with the average asking rent up 7 percent from the 2008 peak. Asking rent is roughly half of the average rent in urban office space, motivating tenants who may have been priced out of the urban core to move to the suburbs. The lower costs and relatively more land available in the suburbs also have resulted in the creation of large campuses catering to professionals. Many of these office campuses offer on-site amenities such as gyms or daycare centers. Additionally, the cost savings allow some companies to renovate existing spaces into modern office concepts.

The evolution of suburban communities into amenity-rich environments is demonstrated in Plano, Texas. Located 40 minutes outside Dallas, Plano features numerous corporate headquarters including Toyota, Alliance Data, Frito-Lay, Pizza Hut and J.C. Penney.

And Tempe, Ariz., located in the Phoenix metro area, has a live-play-work environment that attracts millennials. Several large employers are there, including Honeywell and Freescale Semiconductor. Additionally, Insight has its headquarters within the city, and JPMorgan is building a 67-acre campus. The area incorporates a large university, creating a recruiting pool for nearby companies targeting workers in the region. Other companies have taken notice of the success in downtown Tempe, including State Farm, which recently built its new regional headquarters.

To read the full report, click here.

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