January 16, 2015
Download the report: naiop.org/preferredofficelocations
For close to a decade, based on anecdotes, real estate professionals have suspected that vibrant and walkable office environments are preferred over and perform better than single-use office locations. A new study, the first of its kind, tests this hypothesis across 40 plus U.S. office markets and concludes the following:
Do office tenants prefer CBDs to suburban areas? Sometimes they do, sometimes they don’t. Location preferences primarily depend on company priorities and on the area’s economic base and spatial structure.
Do office tenants prefer suburban vibrant centers to typical single-use suburban environments? Yes, they do.
Are office properties in CBDs performing better than those in suburban office areas? Yes, for rent level and rent changes; no difference in vacancy rates; no, for absorption (less absorption in CBDs).
Are office properties in suburban vibrant centers outperforming those in typical single-use suburban office areas? Yes, for almost all metrics.
Are suburban vibrant centers preferred to or performing better than CBDs in their market areas? Preference depends on the specific area; vibrant center performance is the same as or better than CBD performance.
Office tenants today prefer to be located in amenity-rich, mixed-use, highly-accessible suburban vibrant centers (also known as “live, work, play” locations) rather than single-use suburban office locations by a margin of 83 percent to 17 percent, according to a new report released by the NAIOP Research Foundation (http://www.naiop.org/preferredofficelocations).
The report, “Preferred Office Locations: Comparing Location Preferences and Performance of Office Space in CBDs, Suburban Vibrant Centers and Suburban Areas,” draws from expert opinion and property-level data and compares central business districts (CBDs) with their suburban areas in the 45 largest office markets in the United States. The 80-page report also analyzes 42 suburban vibrant centers compared to either nearby suburban office parks or the remainder of the office submarket surrounding the center.
“This thorough and data-driven report provides valuable insights for the commercial real estate industry into the emerging preferences of office tenants,” said Thomas J. Bisacquino, NAIOP president and CEO. “The report’s findings about the strong performance of vibrant centers–whether in strong downtowns or suburban areas–will help guide our members’ strategies when deciding where to develop new office space.”
The popularity of suburban vibrant centers comes from combining the best qualities of a suburban location with urban character. In the three largest office markets, examples include Stamford, Connecticut (New York City region) compared with the Stamford submarket; Old Town Pasadena (Los Angeles region) compared with the Pasadena/Arcadia/Monrovia submarket; and Ballston, located in Arlington, Virginia (Washington, D.C., region) compared with the neighboring Tysons Corner submarket. Characteristics such as mixed-use buildings, high density and walkable access to destination spots make suburban vibrant centers lively and appealing locations for work – and destinations outside of work hours.
Comparison metrics for the analysis using CoStar Group data were asking rent prices, vacancy rates and absorption rates. Overall tenant preferences revealed no strong preference for either downtown or suburban office space, with respondents about equally split between the two options. The preference narrows down to the specific company needs and market factors. For example, companies trying to recruit young talent, like technology start-ups, often seek a vibrant center location, which could be in either downtown or suburban areas.
When the suburban vibrant centers are compared to downtowns, the preference is location specific and needs to be qualified; strong CBDs are preferred over suburban vibrant centers, but if the CBD is weak, then the opposite holds true. Also, the most vibrant CBDs tend to be in larger office markets accessible by public transit. As density, critical mass and accessibility decrease, the CBD vibrancy also decreases, while the area’s automobile dependence increases.
When studying suburban vibrant centers compared to traditional suburban office developments, the results showed conclusively that suburban vibrant centers – featuring abundant professional opportunities, proximity to entertainment options, and availability of residential spaces – were strongly preferable. Many of these areas benefit from access to public transit systems – whether rail or bus – but some of the areas studied are only accessible by car.
“On the basis of my research to date, I believe that office properties in suburban vibrant areas will continue to out-perform traditional suburban properties,” said the report’s author, Dr. Emil Malizia. Malizia is a professor of city and regional planning and director of the Institute for Economic Development at the University of North Carolina-Chapel Hill; and president of Malizia & Associates, LLC.
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About the NAIOP Research Foundation: The NAIOP Research Foundation was established in 2000 as a 501(c)(3) organization to support the work of individuals and organizations engaged in real estate development, investment and operations. The Foundation’s core purpose is to provide these individuals and organizations with the highest level of research information on how real properties, especially office, industrial, retail and mixed-use properties, impact and benefit communities throughout North America. For more information on how to contribute or for complimentary research reports, visit www.naioprf.org.