By Aaron Jodka | May 2020
Is now the time for the suburban office to shine? That’s a question we are hearing a lot of, and for good reason. There’s merit to an argument supporting the suburban market because of the five Ds: Demographics, Density, Driving, Distributed Workplaces, and Dollars.
Demographics – due to Millennials – are shifting in favor of the suburbs. Millennials have been one of the topics du jour of commercial real estate for years now, and the largest group of them born around 1990 are now 30-somethings. What happens at around 30? Statistically speaking, people get married and have kids. This has historically driven people out of cities to the suburbs to get a bit more space and send children to school. The average age of a first-time mother in 1980 (the start of the Millennial generation) was 25.6. In the Baby Boom generation of post-WWII, mothers were typically in their early 20s.
Unlike cities, the suburbs lack density. Have you paid attention to the housing market in recent weeks? Young families fleeing the city in search of space are moving to the suburbs, where houses are trading quickly. Office buildings are also less dense – shorter and lacking the vertical height of buildings in an urban area, they frequently feature staircases as a mode of entry, rather than elevators in buildings downtown.
Prior to the COVID-19 pandemic, the T was overcrowded and its on-time performance sometimes poor. Platforms were regularly packed, and at numerous stops, multiple overfilled trains had to pass before passengers could get on, the opposite of social distancing. Driving one’s own car means no contact with others and a known environment, but Boston has been ranked as having the worst traffic in the country. It is not unreasonable to expect a higher number of workers to drive after the pandemic, causing increased congestion. The Mass Pike could turn to Mass Chaos with multiple air-rights projects due to move forward and the straightening of the Allston interchange. Parking will be a hot commodity and is very costly in the city, while free in the suburbs.
Suburban office buildings have room for companies and workers, to spread out. The benching and hoteling trends that have swept urban centers across the globe and Boston as well are not as prevalent in the suburbs. Designing an office with built-in social distancing and distributed workplaces is easier to do in the suburbs and also decentralizes staff, limiting the disease risk associated with a singular location. During the pandemic, most office employees are working from home today. Suburban offices would allow them to work nearer home.
And the suburban market is a whole lot cheaper: the urban rent premium has never been higher. Using the core of the suburban market (Inner Suburbs, 128 Mass Pike, and 128 Northwest) as our proxy, the average blended Class A and B rent on suburban office and lab space is nearly $30/SF less expensive. Previous peaks of $17.60/SF and $23.34/SF were reached in 2000 and 2008. In 1988 the premium was less than $15/SF.
There are a number of reasons why a suburban office strategy makes sense today, the five Ds chief among them. Anecdotally we have seen several urban tenants who are looking for space on a split urban/suburban requirement or are considering suburban options for their employees. It’s early, and the moves haven’t happened yet, but we are watching the phenomenon very closely.