Where are the Offices: Do Tenants Prefer the City or the Suburbs?

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It’s been an ongoing debate as to whether tenants are favoring the suburbs over the city. As we see more office campuses such as Toyota and Liberty Mutual pop up in suburban areas, the favorability of suburban markets is making headway when compared to the city. So, where are the offices?

Here are four factors to consider when deciding between suburban and urban offices:

Considering Space Requirements

There is certainly no shortage of space in the suburbs, giving companies ample space to build out the perfect office campuses for their headquarters and to include incredible amenities such as gyms, restaurants, laundry services and outdoor green space.

Demand is steadily increasing for space in the suburbs as we see more mixed-use developments catering to these suburban offices. These mixed-use spaces are offering walkability to restaurants, retail, shopping and entertainment for workers to enjoy just steps from their offices.

Not Forgetting Cost

Office space is generally more expensive in the city than in the suburbs, because of the limited amount of space available. For more space at a lower rental rate, companies are considering office space in the suburbs. The tradeoff here with suburban buildings is that many of them lack the flashy amenities that the downtown office possess, although if a company decides to build its own office space, this can be designed to tailor to these specific employees.

On average, rental rates in the suburbs are around $11 less per square foot than in the CBD. With higher vacancy in the suburban markets, tenants have the power to negotiate concessions from the landlord.

Where is the Talent?

Millennials typically gravitate to urban settings, meaning the talent pool in the urban office markets is much greater. As millennials continue to put off homeownership, they are setting down roots in places that offer walkability to shopping, dining and entertainment, which can be found in urban settings.

Companies favor urban offices so that they can tap into this talent pool that already lives in the area. Since millennials are set to be the largest working generation in the coming years, this is vital to the success and longevity of companies.

… and Accessibility

Public transportation along with ride-sharing services have made car ownership less vital in today’s world. For companies transitioning to suburban office markets, this may have an affect on recruiting top talent, because many workers will have to drive to the office rather than walk or take public transportation methods.

The addition of residential units to suburban office campuses can offset this by creating a lifestyle that is similar to the urban setting, where employees can walk or bike to work and enjoy conveniences just steps from their apartment or office. This trend will likely encourage more millennials to move to the suburbs rather than staying in the CBDs.

NAI Global is a leading global commercial real estate brokerage firm. NAI Global offices are leaders in their local markets and work in unison to provide clients with exceptional solutions to their commercial real estate needs.