Ciminelli Suburban vs. Urban Office Space

When selecting a location for a new office space, one of the most important considerations is whether to choose an urban or a suburban setting. Location matters to both your employees and your clients, so it’s important to get this crucial aspect of your new office space right.

Here are five considerations when choosing a new office location:

Regional differences

Between 2008 and 2018, the US expanded its office footprint by 682 million square feet. But how that growth has happened has varied significantly by region.

In the Pacific Northwest, Midwest and Northeast, urban growth exploded. For example, the Pacific Northwest saw a 32 percent increase in urban real estate, representing 19.8 million square feet of commercial real estate property. The Northeast saw a 16.5 percent rate of growth, represented by 55 million square feet across 290 properties (with a minimum of 25,000 square feet).

Conversely, the Western and Southwest regions saw rapid suburban growth for commercial real estate. In the Southwest, fully three-quarters of all added square footage was in suburban locations. The Western region saw similar growth as well. In a region that includes markets like Denver, Salt Lake City, Las Vegas and Phoenix, suburban sprawl is to be expected. Because of this, so-called “tech corridors” such as Salt Lake City’s Silicon Slopes have also sprung up.

Specifically to Buffalo, 855,910 square feet of new industrial space was leased last year, and 141,000 square feet of new space was developed. Tenants represented a wide swath of industries, including food and beverage, medical, tech, light industrial, and warehouses and distribution centers. Several retail malls are being converted into suburban town centers—a mix of retail, office and residential space in a walkable “village” setting. These locations currently make up the majority of the area’s current commercial real estate vacancies, and their development should help bring Buffalo’s retail occupancy numbers in-line with the national average in the coming years.

Amenities

Employees, looking to strike the best live-work-play balance, no longer want to be “in a walled-off suburban campus,” says Sandy Paul, the managing director of national market research at real estate services company Newmark Knight Frank. Instead, they are looking for walkable environments with nearby restaurants and shops. Employees are also beginning to expect perks like on-site fitness and childcare facilities, as well as communal outdoor spaces.

Unfortunately, that makes between 14 and 22 percent of US suburban office inventory obsolete. However, locations that are currently obsolete may represent areas of future growth. The suburban office market saw 29 consecutive quarters of net positive absorption (statistics available through 2017), as well as 23 straight quarters of year-over-year rent growth.

At Ciminelli, we organize public and common spaces, host community events, appoint our spaces with care and integrate new amenities. We know what makes properties attractive as workspaces, and our goal is to create commercial real estate that supports engaged, excited employees so tenants have a happier staff with less turnover.

Transportation

Transportation is another major consideration for both employees and clients. Urban parking can be a nightmare, especially in more dense areas. The American commute time has increased nearly 20 percent since 1980. The average American now spends 17 hours per year searching for parking spots, but drivers in Washington, DC; San Francisco, CA; and Los Angeles, CA all spent more than 60 hours per year looking for spaces. In New York City, that number tops out at 107 hours—over four full days per year!

More and more workers are relying on public transportation and ride-share programs, and forecasts predict that only half of millennials will own cars by 2020. This may become a challenge for commercial real estate located in the suburbs. While many office parks are located along major thoroughfares, those locations don’t always align with mass transit stops.

Some companies, particularly those in Silicon Valley, now offer employee shuttles. Meant to ease the strain being placed on overtaxed public transportation systems that can’t address perpetually increasing commuter populations, these shuttles are a stopgap measure to ensure super-commuters have a way to get to work until longer-term, larger-scale transportation upgrades can be implemented.

Many municipalities attempting to tackle the issue of failing infrastructures coupled with increasing demand are looking at transit-oriented development (TOD) to provide solutions. TOD promises to increase ridership, enhance economic development and establish a sense of place. These so-called transit villages aim to become destinations in their own right, building a sense of community by including thoughtful physical features, public amenities and social functions.

In Buffalo, NY the plan to expand the city’s current light rail into the surrounding suburbs represents a move toward transit-oriented development. The proposed extension would have the light rail traveling through the urban core, urban and suburban neighborhoods, and multiple mixed-use centers. The proposed stops at these mixed-use centers represent the most promising aspects of TOD.

Embracing TOD by aligning investment in Buffalo’s Metro Rail with the region’s vision for smart growth and economic development will help the city keep pace with other regions in regard to economic development and livability; improve job access; and provide an affordable urban lifestyle to families.

Ciminelli’s support of Buffalo’s transit-oriented development includes the Cars on Main initiative, which opens the city’s main thoroughfare to cars, as well as pedestrians and bicyclists. This project aims to stimulate economic development, increase transit ridership and improve quality of life. The first phases are already complete, and the results include a return of economic activity, including new businesses and residential living opportunities. Along with bringing vehicles back to Main Street, the plan includes upgrades to the Metro Rail infrastructure, which will further connect the city.

Downtown transit-oriented development in Buffalo has given rise to an urban housing boom. In the last few years, Ciminelli has added hundreds of opportunities for downtown living through their work on properties like The Mentholatum, The Sinclair, Highland Park and Bethune Lofts. We continue to develop properties that complement and support the city’s urban development goals by designing mixed-use retail properties in urban village settings that foster a sense of community and neighborhood pride.

Cost

Office space is generally more expensive in the city than in the suburbs, which can price some tenants out of urban business districts with more limited space. However, a study released by NAIOP found that when urban amenities were coupled with a suburban setting, rental rates increased and vacancies dropped, as compared to single-use suburban offices.

Because vacancy is higher in many suburban markets, tenants tend to have the upper hand in negotiations. However, the lack of building amenities in suburban real estate may make the locations less appealing to some tenants.

Community

Employers will continue to focus on fostering  a sense of belonging for employees. How they do that might depend in part on location. For an urban-based office, creating an incentivizing environment may mean bringing in lunch catered by a trendy new restaurant or offering Qualified Transportation Fringe Benefits, whereas a suburban location may have the space to install a half court for pickup basketball during lunch breaks or offer an array of on-site services like an employee health clinic.

It generally matters less what specific perks are offered, as individual employees are motivated by different incentives. What matters is that the employer fosters a vibrant, nurturing sense of community by capitalizing on available resources. Millennials rate having a sense of community as one of the top three factors they value at work, and “career” only slightly outranks “community” across all ages.