Vibrant Centers – The Changing Landscape of Office Space Preferences

office locations

For years there has been anecdotal evidence that Millennials have different lifestyle preferences from their parents’ generation, in that they prefer to work and live closer to where the action is in more compact urban centers and would like to walk and bicycle more and drive less.

A recent report by the NAIOP Research Foundation formed by the Commercial Real Estate Development Association, a 15,000-member North American organization for participants in the office, industrial, retail and mixed-use real estate industry, presents supporting quantitative data showing the preferences of commercial office tenants. The survey, which covers the 45 largest office markets and 42 suburban centers in the US, shows a clear preference by tenants in what it calls ‘vibrant centers’ when it comes to locating their offices.

The motivations and criteria in selecting where to locate their offices are obvious – to find a most cost effective location which is attractive to the types of talents these companies are seeking. For planners of urban centers and sub-urban centers alike, an obvious question is how to make their cities and towns attractive to the desired companies to locate there.

Vibrant Centers

Office brokers use the term “live, work, play” (LWP) to describe the type of places sought by many prospective talent seeking companies trying to attract young, educated workers. Typically, these are places that offer a range of residential and retail options as well as other amenities in addition to office space.

They have identified two general types of such vibrant centers – central business districts (CBDs) of major urban centers and suburban mixed-use centers that have achieved critical mass – both of which can be  characterized as compact, connected, walk-able and bike-able, relatively dense mixed-use/multi-use and primarily employment-oriented.

Key Findings

The survey looked at the preferences of potential tenants amongst three types of office locations: (1) CBDs in urban centers, (2) mixed-use vibrant suburban town centers and (3) single-use suburban business parks. The same report also analyzed the relative performance of CBD versus suburban town centers and suburban town centers versus suburban office parks across the key metrics of rents, vacancy rates and relative absorption (an indicator of where tenants are leasing and occupying office space).

Here are the report’s key findings:

  • There is no significant difference in preference when it comes to choosing between whether to locate in a CBD and a vibrant suburban center. However, the difference only becomes significant where there exists a vibrant CBD which appears to be the most desired choice.
  • CBDs perform better than suburban centers on rents, about the same on vacancy and less so on absorption.
  • Tenants overwhelmingly (83.5 to 16.5 percent) prefer suburban vibrant centers to single use suburban office parks.
  • Office properties in vibrant suburban centers significantly outperform those in office parks and office corridors across all key measures.

Trends and Opportunities for Suburban Town Centers

What is driving this recent shift in location preferences seems to be twofold. For one, office space users seem to be increasingly shunning the overwhelmingly auto-dependent, single-use, low-density suburban office parks in favor of amenity-rich urban places. The other factor likely has to do with employers in the knowledge-based industries catering to the LWP desires of Millennials who have strong preferences in having work, eat, sleep and play in close proximity in walk-able, bike-able mix-used compact environments with transit options.

As a result, CBDs have convinced many talent seeking companies along with their young educated workers to relocate back to the dense urban environments after decades of being in hermitic, remote and isolated business parks on the edge of suburbs.

If CBDs are experiencing an office rental renaissance, it is in suburbia, which is home to 77 percent of the nation’s office inventory, where the emerging trends and potential are more significant.

In the past few years, suburbia has witnessed the re-development of existing single-use retail centers and office parks into LWP districts. In addition, core areas of smaller satellite towns within a larger metro region may now achieved the critical mass of employment density, mixed-use environments, amenities and design features to have the necessary features of a small CBD or vibrant suburban center. These core areas, especially the town centers, have a unique opportunity to be re-developed into vibrant centers to fuel the continued demand for LWP places from the growing knowledge-based industries.



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