IREM Global Summit | Chicago | October 10-13

IREM Global Summit | Chicago | October 10-13

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Welcome Back, Suburbs!

August 23, 2017 | John Salustri

Did you think the suburbs were dead? If so, there is a near Biblical resurrection occurring, as CBRE indicates in its North American Suburban Office Trends Report. And, according to Gail Kalinoski of Commercial Property Executive, there’s new life in the ’burbs.

“Don’t write off those suburban office markets as unappealing to Millennial workers, occupiers or investors,” she writes. The report notes that "suburban office markets that provide an urban-like live-work-play environment—the so-called ‘urban-suburban submarkets’—are in a good position to be in high demand, particularly as rents climb and supplies dwindle in downtown locations.”

Scott Marshall, CBRE’s director of Advisory & Transaction Services and Investor Leasing calls the new suburban model, those urban-suburban submarkets, a low-risk alternative to downtown leasing activity due in large part to guess what? Fundamentals.

Indeed. According to the report, Q1 rents in those markets underbid downtown prices, coming in at $27.46 per foot as compared to $31.90 a foot. Vacancy rates also outshone their downtown counterparts, especially in emerging urban-suburban markets—15.3% as opposed to the downtown markets’ 13.8%. That’s a recipe for growth.

“Steep rental rates and an increasingly limited supply of quality office space, especially in large blocks, in downtown submarkets will continue to lead more tenants to look for space in suburban markets,” says Marshall. “Moreover, as more Millennials age and begin families, many will eventually move to the suburbs. Office locations that can provide the urban characteristics this pool of workers has grown accustomed to will be in the highest demand.” In other words, suburban communities that can best replicate the live-work-play aura of urban markets stand to win.

And what are those so-called established and emerging US markets? CPE provides a short list: “Established submarkets like the New Jersey Waterfront and Palo Alto and Santa Monica in California also have more entertainment, recreation, restaurants, grocery stores and public transportation. Emerging submarkets like Glendale, CA, a Los Angeles submarket, or the Central Perimeter in Atlanta are more likely to be in transition with mixed-use developments and public transit projects planned or under way.” It should be noted that the established submarkets represent some 30% of suburban construction and the established locales account for an additional 22%.

But solid fundamentals don’t come without good news from the employment front. Kalinoski reports that, “Common attributes of the urban-suburban submarkets, both established and emerging, are the presence of employment opportunities along with abundant retail, office and housing options.”

All of which adds up to live-work-play locales, the Millennials’ destinations of choice. To paraphrase an old Western nugget: There’s growth in them thar suburbs. Now all we have to do is figure out what to do about those malls.

The full CPE report is available here.

About the Author
John Salustri is editor-in-chief of Salustri Content Solutions, Inc., a consultancy focused on enhancing the web and print content of clients around the nation. He is a regular contributor to JPM Magazine and a frequent blogger for IREM’s website. Prior to launching SCS, John was founding editor of GlobeSt.com, the industry’s premier real estate news website, where he managed the daily output of 25 international reporters, and prior to that, he was editor of Real Estate Forum Magazine. John is a four-time winner of the National Association of Real Estate Editors’ Award for Excellence in Journalism.

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