The migration of renters and employees has begun affecting office tenants, causing many employers to relocate to suburban markets as well.
As multifamily rents in core markets have continued to climb, investors, office tenants and residents alike have turned their attention to secondary markets. According to JLL’s Investment Outlook report, secondary markets accounted for 50 percent of all U.S. office transactions last year, due to slowing demand and oversupply of product in core markets.
The San Francisco Bay Area, home to many of the top performing tech companies in the U.S., boasts some of the highest rents in the country. Several cities throughout the Bay Area were ranked in the top 10 for rent increases in 2017. San Francisco continues to lead the nation with an estimated median rent of $4,000 per month.
With easy access to several public transit options, many employees of San Francisco-based companies are opting to commute from suburban neighborhoods just outside of the city to avoid peak rental rates. These outlying cities offer not only a lower cost of living, but often a higher quality of life than the overpopulated urban cores. They provide access to the cultural attractions and other amenities of the city, as well as recreational options of their own, such as new, hip restaurants, without the crowds, clutter and traffic.
The migration of renters and employees has begun affecting office tenants, causing many employers to relocate to suburban markets as well. Secondary markets offer a strong value alternative, allowing employers to retain and attract top talent, while paying less rent.
This is especially true for cities with a strong tech presence in addition to a broad variety of service industry opportunities. Tech companies lead the office market overall, and are the driving force behind the demand for open and collaborative workspaces. Because these secondary markets tend to be less saturated and offer more square footage, they are able to accommodate the “live, work, play” dynamic that these office tenants are looking for.
SOURCE: National Real Estate Investor