CBRE: ‘Urban-Suburban’ Submarkets Offer Opportunities for Investors, Occupiers
Suburban office markets that provide an urban-like live-work-play environment are well positioned to capture strong demand from office users, reported CBRE, Los Angeles.
The most common attributes of so-called “urban-suburban” submarkets include abundant retail, office and housing options as well as employment opportunities, CBRE said.
“Steep rental rates and an increasingly limited supply of quality office space, especially in large blocks, in downtown submarkets will continue to lead more tenants to look for space in suburban markets,” said CBRE Executive Managing Director of Advisory and Transaction Services Scott Marshall. “Moreover, as more millennials age and begin families, many will eventually move to the suburbs. Office locations that can provide the urban characteristics this pool of workers has grown accustomed to will be in the highest demand.”
CBRE said “established” urban-suburban submarkets including the New Jersey waterfront, Santa Monica and Palo Alto, Calif., have the added advantage of amenities such as entertainment and recreational offerings, restaurants and grocery stores and public transportation access.
By contract, “emerging” submarkets such as Glendale in Los Angeles or the Central Perimeter in Atlanta are more likely to be in transition, with development, construction or renovation shaping dynamics. “Notably, emerging submarkets are more likely than established submarkets to have mixed-use projects in the works,” the report said. “Mixed-use projects often serve as a catalyst for additional development in a particular area, spurring interest in the surrounding neighborhood. Emerging submarkets are also more likely to utilize government incentives, zoning changes or other public commitments to assist development than established submarkets.”
CBRE said the vacancy rate for emerging urban-suburban submarkets equaled 15.3 percent in the first quarter compared with 13.8 percent for established urban-suburban submarkets. Similarly, rents in emerging urban-suburban submarkets have yet to surpass the $27.79 per square foot overall suburban average but were essentially equal at $27.46 per square foot and significantly below rents in established urban-suburban submarkets, which reached $31.90 per square foot.
“Established urban-suburban submarkets offer investors and occupiers a relatively low-risk alternative to downtown office space, as fundamentals in these submarkets already outperform the suburbs overall and in many metros, rival the central business district,” said CBRE Americas Head of Office Research Andrea Cross. “Alternatively, emerging urban-suburban markets offer those with longer-term strategies an opportunity to secure space in up-and-coming areas while there are still options to choose from and purchase prices and rents are more affordable.”
