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Do Office Tenants Prefer the City or the Suburbs? The Answer Is Complicated

Do Office Tenants Prefer the City or the Suburbs? The Answer Is Complicated National Real Estate Investor (08/16/17) Egan, John

Office building owners and developers looking to bridge the urban-suburban gap may want to focus on what you might call "urb-suburban" settings. Urb-suburban is one way to describe the mash-up of suburban office locations in walkable settings with easy access to urban-style amenities like public transportation, restaurants, and retail. Industry analysts caution that those owners and developers of suburban offices that fail to embrace the urb-suburban vibe might find it harder to justify new projects or attract new tenants. "Suburban office submarkets with urban characteristics are in the best position to capture occupier demand, and may provide unique opportunities for occupiers to secure space at lower rents and for investors to buy at lower prices in areas that are poised for future growth," CBRE researchers write in a new report. Among the examples of established submarkets that provide a wealth of urb-suburban attributes are the New Jersey Hudson River waterfront, the San Francisco Bay Area suburb of Palo Alto, and the Los Angeles suburb of Santa Monica.

The Frisco-Plano area in the Dallas-Fort Worth suburbs is one of the U.S. locales benefiting most from the urb-suburban trend, reports Andrea Cross, CBRE's head of office research for the Americas. Among the corporate heavyweights that recently have expanded in or relocated there are Fannie Mae, JP Morgan Chase, McKesson, and Toyota. Frisco-Plano offers an array of urban-like features. Scott Marshall, executive managing director of advisory and transaction services at CBRE, observes, "It's no longer build it, the labor will come. These tenants are going to where the labor exists. Not all of the labor is in an urban setting." Finally, a CBRE poll of its professionals in the 25 largest suburban markets found that urban-inspired live-work-play elements contributed to the success of over 50 percent of the urb-suburban markets that were included in the research. As a testament to the attractiveness of urb-suburban submarkets, the average office rent for the 25 biggest suburban markets during the first three months of this year was $27.79 per sq. ft., CBRE states, while the average office rent for established urb-suburban submarkets was $31.90 per sq. ft.