The Burbs Are Booming: Breaking Down The 682M SF Of Office Built In The Last Decade
The conventional wisdom that companies, and therefore developers, are flocking en masse to downtown areas to chase younger talent doesn't always bear out, new data shows.
Cities like Boston, New York and Chicago have all posted significant office gains to their urban submarkets in the last decade. That growth stems from companies wanting to be close to where coveted millennial talent lives.
But of the 682M SF of office built in the U.S. between 2008 and 2018, the suburbs are still seeing considerable growth. Almost 60% of the nearly 370M SF of office added to the top 20 U.S. markets in the last 10 years is in the suburbs, according to Yardi data provided via CommercialCafé.
“In older East Coast markets, a city center is the most logical place for development to go because there is not a lot of available land,” Houston-based Transwestern Vice President of Research Stuart Showers said. “Go further west, and there is a large amount of cheap land available. You don’t put everything in the city center. It just wouldn’t make sense.”
Companies looking for offices outside the densely populated Northeast corridor are making decisions based on population trends just as much as those in Washington or Boston. About 52% of U.S. residents describe where they live as suburban, compared to the 27% in urban areas and 21% in rural areas, according to HUD’s 2017 American Housing Survey.
“Talent is an equal driver, if not more so, than location in some markets,” Colliers National Director of Office Research Stephen Newbold said.
In many of those suburban submarkets, technology firms are driving the office growth.
Companies like Facebook, Google and Uber have played a part in the 28M SF of suburban office growth in the Bay Area in the last decade. The increase was almost entirely in Silicon Valley, where the office market has expanded by 21% in the last 36 months, according to Colliers. Apple’s Cupertino headquarters added 2.8M SF, Coleman Highline in the San Jose Airport submarket added 1.8M SF and Santa Clara Square added another 1.7M SF.
The tech industry’s suburban impact isn’t limited to Northern California.
Silicon Slopes, a tech corridor in suburban Salt Lake City, added more than 9M SF of office in the last decade thanks to companies like Oracle, Tesla and Visa. Nearly 86% of the more than 17M SF of office added in Greater Salt Lake City in the last 10 years was in the suburbs.
Further south, IBM and Boeing take up space in some of the nearly 12M SF of suburban Phoenix office product added since 2008, according to CommercialCafé.
Dallas’ tech-centric Platinum Corridor, along with Plano and Las Colinas, added a combined 17.7M SF of office in the last decade — a 19% increase and more than half of the 34.5M SF of office added to the entire Dallas-Fort Worth market.
Suburban growth in Houston extended beyond tech firms.
Between 2014 and 2016, ExxonMobil moved about 10,000 employees to a new headquarters in The Woodlands, a master-planned community nearly 30 miles to the north of Houston. Companies like the American Bureau of Shipping have followed suit, and the suburb has collectively added nearly 6M SF of office since 2008.
But Houston’s suburban growth wasn’t just to the north. The Energy Corridor to the west of the city added 12.5M SF during the same time frame. The sizable gains come as companies want to be as close as possible to employees across multiple business centers in the spread-out metro area.
More than 76% of the nearly 40M SF of office built in Greater Houston in the last decade is found in the suburbs.
“The question is, when you’ve got a sprawling city, how far can you commute before you lose your employee? That’s the fundamental question,” Showers said. “In Houston or Dallas, 30 miles could be the ‘far out’ marker that in Boston is more like 7 or 8 miles.”
While the suburbs dominated out west, the Northeast has added 130.5M SF of office since 2008, the most of any region in the U.S. Urban office areas in the region expanded by more than 55M SF, or 16.5%. Northeastern central business districts, which Yardi classified as a separate category from urban areas, grew by an additional 24M SF.
But analysts expect factors like cost savings on rent and limited transportation options to further boost suburban office growth in coming years. Average office rents in Boston's Back Bay submarket near downtown approach $90 per SF, according to Perry data. Rents along the Route 128 belt, a suburban tech corridor outside the city, average $35 per SF.
“If you come from New York or Boston, you may lose sight that the rest of the country doesn’t have a real robust network of transportation, and there aren’t many options beyond your car to get around,” said Michael Roessle, a Minneapolis-based CoStar director of market analytics.
The bigger office swing across all regions could stem from millennials deciding to raise children outside the city. Just as companies followed young professionals into the urban core, they can migrate with them to the suburbs.
“The growth has to occur where the households are,” Showers said. “The ‘retail follows rooftops’ adage can just as easily apply to office or any other asset class.”