In this three-part series, Transwestern examines downtown versus suburban real estate performance of the top 30 U.S. markets post-recession to develop a clearer picture of the resilience exhibited in many suburban areas. Part 1 laid out the historical data to reveal a more complex story than is often told amid assertions about the “death” of suburbia. Part 2 focused on historical demographic trends as well as those that will support the strength of the suburbs over the next several years.
In the final installment of our series on suburban growth, we showcase select commercial real estate projects across U.S. markets that have capitalized on the economic, real estate and demographic trends explored previously. Common themes include:
- Demolition: As office buildings become obsolete and empty, real estate developers may choose to demolish and rebuild, often into an alternative property type. When this occurs, the vacant space removed from the market lowers the vacancy rate, prompting tighter market conditions.
- Renovation: In some cases, the landlord renovates the product from Class B or C to Class A, adding top-notch amenities within the property, such as high-end gyms, bike rooms, car-charging stations, tenant lounges and cafes.
- Community Amenities: Several suburban areas have "urbanized," often with support of local municipalities, and offer more entertainment, social and lifestyle amenities.
- Tenant Interest: Select tenant industries, such as technology and coworking, favor the suburbs, with some tenants relocating from downtown to suburban office.
- Infrastructure Improvements: Investments in streetscapes or transportation enhancements that shorten commutes can make suburban-leery tenants take another look.
Explore the case studies in detail below.
The Future of Suburbia
The future looks bright for many suburban office markets. Nationally, we are trending away from suburban corporate campuses, as these sites get reimagined and diversified with alternative uses and added amenities. These enhancements will not only reduce the available existing office space and help tighten the suburban office market, but also support existing office tenants.
We expect the existing suburban office stock to undergo renovation to compete with new real estate development downtown, especially as buildings change ownership and new design features and enhanced amenities are funded. As construction costs climb, improvements to existing suburban buildings in lieu of new construction could become a trend for the suburban office landscape nationwide.
With a potential economic downturn on the horizon, suburban markets that are well located with a variety of amenities and supported by public transportation may see an uptick in tenant activity as companies seek real estate savings. Not only will these building be, in some markets, half the cost of their downtown counterparts, but they also will have caught up with popular features and conveniences tenants are demanding.
Sandy McDonald is the Director of Market Research for the Midwest region, and Elizabeth Norton is the Managing Research Director for the Mid-Atlantic region.
SEE ALSO:
- Strength of Suburban Real Estate Part 1: Data Tells a Complex Story
- Strength of Suburban Real Estate Part 2: Demographics Favor Suburbs
- Cities and Suburbs: The Best of Both Worlds
- Underwriting Real Estate Investment in a Mature Market
RELATED TOPICS:
commercial real estate real estate capital markets us job market us economy economic growth market reports office leasing agency leasing landlord representation office leasing strategy office building repositioning