Report: Office Parks Declining in Popularity Among Tenants
With suburban office parks becoming less desirable among employers and walkability becoming a larger factor for workers, commercial real estate owners may be left holding the bag—unless they take steps to improve their offerings, a new study finds.
If your association is looking to make a move anytime soon, you may want to make sure that the new space is in a walkable area.
New research from the commercial real estate firm Newmark Grubb Knight Frank finds that office parks are becoming obsolete because neither tenants nor employees are fans. The reason? Workers want stuff nearby—and if there isn’t stuff nearby, they want extra amenities in the office park.
And, according to Suburban Office Obsolescence: Quantifying Challenges and Opportunities, that shift in employer preferences is causing a deep decrease in the value of suburban office parks.
“Suburban office buildings that have become obsolete due to car-centric and removed locations—and which do not have some factor that will remedy these traits in the future (such as a planned transit station or new highway exits)—are unlikely to achieve market-average rents as leases roll,” the report states [PDF].
The study, which took a look at office parks in areas such as Silicon Valley, Chicagoland, and the Denver region, found that factors such as proximity to public transportation and local restaurants had significant effects on vacancy rates.
The age of the building also plays a role. Office parks built before the 1980s, for example, were far more likely to have a significant number of vacant spaces.
And not every employee at a given company is looking for the same thing: Younger workers value more collaborative environments not tethered to traditional office buildings, while older executives tend to live in more suburban areas and drive to work, making parking an important aspect of the offering.
Can Old Office Spaces Be Salvaged?
Some of these spaces may be unable to recoup their value, but others can be improved through the addition of fitness centers, food facilities, and other amenities.
In either case, the shifting nature of the market creates bargaining leverage for tenants—both in terms of price and amenities.
“While most discussions about suburban office obsolescence focus on the owners and managers of these properties, it is important for suburban tenants to be aware of the disconnect between what they and their peers are seeking and what is available in the market,” the report says. “Tenants who are considering a move, a lease renewal, or a lease renegotiation can use the obsolescence problem to their advantage.”
The findings of the study mirror comments made in 2013 by John Sikaitis of the real estate firm Jones Lang LaSalle, who noted that employers’ decision making about office space is being driven by a desire to attract younger employees.