Comparing U.S. Office Growth in CBDs, Urban and Suburban Markets

November 14, 2019

By Dennis Kaiser

The U.S. office footprint has expanded over the past decade, revealing a host of intriguing trends. A recent study by Yardi Matrix’s Commercial Café compared where space was added across 20 of the top U.S. markets.

Gary Bechtel, president of California-based Money360, points out researchers report there has been 682 million square feet of office space added across the country in the last 10 years. Yardi Matrix looked at primary and secondary locations, and examined whether they were urban, suburban or in the central business district (CBD). The office footprint was analyzed within each area from 2008 and 2018 to determine where the expansion and growth occurred over that time period. To keep things consistent, Commercial Café excluded urban from the central business district; preferring to calculate those metrics separately.

The survey noted that suburban geographies are larger than their urban center counterparts and, consequently, they are able to accommodate far more growth. Yet, the suburbs also tend to have more square footage already, which impacts the comparisons. As an example, while four million square feet added to a secondary urban location may represent a high growth rate for that designation, the same addition in a large suburban location may be quite low relative to the existing stock.

The areas of growth were relatively distinct from a regional perspective, notes Commercial Café. For instance, urban areas in the Pacific Northwest grew by nearly 32%, adding a total 112 properties and 19.8 million square feet. The Midwestern urban areas added 192 properties and 21.6 million square feet, an increase of 18.5% in the last decade, according to the Commercial Café study.

What surprised researchers, notes Bechtel, was the fact that dense cities in the Northeast, including Philadelphia, New York City, and Boston, which collectively represent 55 million square feet in 290 properties, grew by 16.5%. CBD’s collectively grew by 5.3%, adding an additional 24 million square feet to those markets.

The Northeast paced the office growth over the past decade, adding 130.5 million square feet. By comparison, the Southwest region added more than 108 million square feet of office space during that same time frame. Yet, in contrast to the Northeast, 75% of the Southeast’s added square footage delivered in suburban locations. That growth probably reflects the overall makeup of those regional markets, notes Commercial Café, since New York City and Boston are dense cities, and Dallas-Fort Worth and Houston are sprawling suburbs, similar to Southern California’s Los Angeles and Orange County markets.

There was roughly 58 million square feet added across the Western region, including 43 million square feet in the suburbs. The suburban sprawl showed up in markets like Denver, Salt Lake City, Las Vegas, and Phoenix, too.

Another interesting component of the 10-year office growth trend, observed Bechtel in Yardi’s research, are the “tech corridors” that have also sprung up in markets such as Atlanta’s Buckhead submarket, Dallas’ Platinum Corridor, and Salt Lake City’s Silicon Slopes.

The suburban expansion throughout the U.S. has been greatly influenced by tech companies who favor campus-style work environments. Combined with the availability of cheap land for development, the West experienced greater office expansion. That growth has been fueled by the quest to attract and retain top employees. Tech companies, such as Google and Facebook, continue to offer a full array of amenities, such as free snacks and meals, the ability to bring pets to work, and free transportation to and from work. That’s resulted in the emergence of an overall relaxed atmosphere not typically found in traditional office buildings of dense city centers.

Looking a bit deeper into the regional numbers, Bechtel says Commercial Café found the Bay Area represented one of the most striking suburban expansions. Consider this: in 2008 there was 141 million square feet of space held in the Bay Area’s primary suburban locations. But, 10 years later, those same areas added another 28 million square feet, an increase of 20%, most of which was in Silicon Valley.

That demand boom has resulted in a shift in interest to other areas, as the costs of living in the Silicon Valley have skyrocketed and remote working has increased in ease and popularity. Salt Lake City has recently experienced impressive growth. Silicon Slopes, Utah’s tech corridor along I-15 south to Lehi and Provo, has accounted for most of the development, adding more than nine million square feet of office space since 2008, and attracting tech industry giants the likes of Oracle, Visa, and Tesla.

This national footprint expansion of office space reveals much about business growth, too. That includes showing where the demand is, what drives development in a given area, whether a specific type of industry drives a specific type of expansion, and how these factors relate to demographic shifts. Bechtel adds, it all plays out in commercial real estate markets across the U.S.

Original Article Here: https://www.connect.media/comparing-u-s-office-growth-in-cbds-urban-and-suburban-markets/