Office tenants (employers!) choose mixed-use centers

Office tenants prefer amenity-rich, mixed-use centers (also known as “live, work, play” locations) over single-use office parks by a margin of 83 percent to 17 percent, according to a NAIOP Research Foundation report.

The nationwide study Preferred Office Locations: Comparing Location Preferences and Performance of Office Space in CBDs, Suburban Vibrant Centers and Suburban Areas, was commissioned by the research arm of the Commercial Real Estate Development Association.

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Most of the nation’s office space—77 percent—is in the suburbs. The last half of the 20th Century was dominated by the development of suburban office parks. Since 2000, however, central business districts (CBDs) have revived. Lately, also, mixed-use centers have captured much of the suburban office market.

Suburban office buildings therefore come in two locational types—so-called vibrant centers, and single-use office buildings. There is no clear preference for downtown versus the suburbs in general. Central business districts command higher rents nationwide, and the vacancy rates are comparable with suburbs, which have absorbed more office space in recent years. Firms trying to recruit young talent, like technology start-ups, often seek a vibrant center location, which could be in either downtown or suburban areas.

The report’s bottom line: “… any company wanting to attract and retain young educated workers who prefer live, work, play locations needs to locate in a compact, mixed-use, walkable place, either downtown or in the suburbs.”

Educated young professionals in the knowledge economy strongly prefer walkable, mixed-use locations to live and work, the authors note. This preference has led firms to adopt many strategies: In Silicon Valley, bus shuttles carry workers from their homes in San Francisco; Other firms are moving to CBDs, smaller downtowns in the suburbs, or new mixed-use towns centers—often served by transit.

“This is the best report I have seen on office space choice in well over a decade,” says Richard Hunt of Peloton Research Partners. His firm has come to similar conclusions in local California, Oregon, Washington, and Wisconsin markets. “This report provides evidence and not just anecdotes” at the national level, Hunt says.

“Suburban vibrant centers” outperformed single-use suburban office areas across almost all metrics, including rent prices and vacancy rates. Characteristics such as mixed-use buildings, higher density, and walkability to destinations make suburban vibrant centers lively and appealing locations for work—and destinations outside of work hours. “The demand for these suburban vibrant centers should grow, compared to the demand for typical single-use suburban locations,” the authors find.

A street in Belmar, Colorado, a suburban vibrant center.

A street in Belmar, Colorado, a suburban vibrant center.

When the suburban vibrant centers are compared to downtowns, the preference is location specific; strong CBDs are preferred over suburban vibrant centers, but if the CBD is weak, then the opposite holds true, the authors report.

The report compares central business districts (CBDs) with their suburban areas in the 45 largest office markets in the United States. The report also analyzes 42 suburban vibrant centers compared to either nearby suburban office parks or the remainder of the office submarket. Some of these mixed-use centers are in smaller markets. Personal interviews support and add nuance to the data—largely provided by the CoStar Group.

The report is authored by Dr. Emil Malizia, 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.

Meanwhile, the anecdotal evidence is strong in support of the NAIOP report. Two recent articles are good examples:

1) Why suburban companies like McDonald’s follow the siren call of downtown. “Following similar moves by behemoths such as Walgreen, Kraft Foods Group, Sears Holdings and Motorola Mobility, McDonald’s plan [to relocate some employees downtown] demonstrates the increasing importance large corporations are placing on downtown real estate in recruiting and retaining younger employees,” according to Crain’s Chicago Business.

2) Downtown Detroit has overtaken the suburbs as a market for office space. “Once awash in vacancies, the downtown Detroit office space market is experiencing a reversal of fortune that is steadily filling old empty buildings and luring corporate tenants out of nearby suburbs,” according to the Detroit Free Press.

Suburban vibrant centers studied by NAIOP.

Suburban vibrant centers studied by NAIOP.


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This column was originally published here.

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