That's not to say that national forces aren't having an effect on where corporate tenants put down stakes. Indeed, it is--in places such as Portland, where the tech industry nosedive has pummeled various submarkets. But this time around, we're finding that users are just as apt to move into town as move out--depending on the dynamics of that firm and the amenities offered by the location.
In the last recession, New York City was the poster child for the great suburban shift as major tenants left--or threatened to leave in hopes of leveraging a major tax break from the state and city. Things are different today.
"If a company is located in Midtown and its employees come in from Long Island and Connecticut, they come in to Penn Station and Grand Central and then take a subway to work," says Greg Collins of Julien J. Studley Inc. "Tell them they have to make their way to New Jersey, for example, and they're going to look for something else in Manhattan."
Collins tells Northeast bureau chief Amy Vaughn that, not only are employees considering their commutes, but they're also looking at the prestige of their business address. "Many professionals expect to do business in New York. This is a magnet city," he says. "Their clients have their own offices here."
Firms may have an office in the suburbs, he concludes, "but they'll keep their flagship here. With rare exception, the only moves to the suburbs, which really are episodic, rather than a trend, are of back-office space."
But that's New York. The picture flips 180 degrees when we move from the Empire State to the Lone Star State.
Jeff Turner, senior vice president of Duke-Weeks Realty Corp., tells Southwest bureau chief Connie Gore that the suburbs are the big-time winners in the tenant race. The price is right, the commute is tolerable and there's more to do after the office door is locked.
The CBDs are "doing a good job of trying to revitalize," says Turner, but the shortcoming is the absence of attractions after the workday ends. He doesn't foresee Dallas ever becoming a 24-hour CBD like New York City.
Rents, of course, enter into the picture, but even in soft times, they don't seem to hold the sway one would imagine, says Gore. More often, the choice is made for lifestyle, to escape downtown traffic and put employees closer to where they live. "People want to come closer to home," emphasizes Keith Coelho, president and principal of Henry S. Miller Commercial's San Antonio office.
But, he continues, the lure of the suburbs also is rooted in the design of the structures. The buildings are ready-made with high-tech necessities. To upgrade a CBD high-rise to smart-building status is practically cost prohibitive.
Florida suburbs are also catching on as major corporations move to find cheaper, better space in the outlying areas. "More opportunity, more new office building construction, more sublease opportunities and more attractive rents can be found in the 'burbs," says Jason B. Kaiser, senior associate in the office group of Trammell Crow Co. Sheer market size alone knocks out the CBD so far as office leasing volume is concerned, he tells Southeast bureau chief Alex Finkelstein.
For example, the suburbs have 1.5 million sf of vacancy or 12% of availability, plus about 500,000 sf of sublease space. "This compares to 625,000 sf of vacancy within the CBD, or 11% of availability, plus about 60,000 sf of sublease space," he points out.
Market size alone dictates that most of the office deals for the rest of the year will be done outside the CBD, the broker maintains. After all, the suburban market is "four times the size of Downtown," Kaiser says.
Besides size, rents will drive office deals to the suburbs. The suburban rent range is $18 to $24 per sf versus $20 to $27 per sf Downtown.
Large corporations that have selected the suburbs over the CBD in the past six months, Kaiser says, include Mitsubishi, Bank of New York and Canadian Imperial Bank Corp.
But Jeffrey Bloom, an office broker at Arvida Realty Services' commercial division in suburban Winter Park, FL, says that trend may reverse itself over the next seven months. Oddly, his vote for the CBD is the same argument Keith Coelho used for the suburbs of Dallas--lifestyle.
He says employers will lease space downtown because that's where many young professionals are living these days. They want to be near their jobs and not commute daily on traffic-choked highways. "Some of the new developments Downtown, including renovated buildings like One South Orange, the Empire Building and the Angebilt are catering to this type of lifestyle," he says.
The city center of Chicago also squeezes out its suburban counterparts, but not by much in a slump-induced quiet time. As Midwest bureau chief Mark Ruda reports: the total direct Q1 vacancy in the CBD rose to 9% while dropping in the past year to 11.4% in the suburbs, according to US Equities Realty LLC. Plus, the suburban market already had 5.1 million sf available for sublease, U.S Equities reports, which pushes the vacancy rate up to 18.5%.
"I don't know if there's a lot of interest anywhere, frankly," says Julien Studley EVP Rick Schuham. "There's a big pause. A lot of deals have croaked or have taken a big breath."
Portland is also experiencing a deep breath. Tom Hayes, a principal with Corporate Property Services, a tenant rep firm that runs with a lot of high-tech companies in the suburbs of Portland, thinks the suburbs will start up faster, but they will have seen a lower low than the CBD. On the other hand, he sees the Sunset Corridor remaining a renter's market until the end of next year, because that's how long it will take the semiconductor industry to turn around. Building owners, he tells West Coast bureau chief Brian Miller, "are cutting their prices out there," says Hayes. "There's been free rent available--several months on a five-year deal--but the actual coupon rates are dropping as well, which is a first for the recent past."
Doug Bean of Doug Bean & Associates, a broker of downtown and suburban office properties, disagrees--simply because the downtown sector offers more. "The CBD is more diversified with law firms and accounting firms, the more recession-type professional services that have seen only a moderate correction as a result of the economy," says Bean. "It also has more transportation and housing options and a vibrant retail center that will keep it more stable."
Clearly, the dynamics of this recession are taking on very localized characteristics, and the relative strength of CBDs versus the suburbs no longer hinge on rental rates alone. Lifestyle, 24-hour activity and building intelligence seem to be taking their place alongside rental-rate considerations as tenants opt to stay in town or head out.
But that's now--at a time when the industry is generally confident that the recession will be short and shallow. If the slump deepens and concessions grow still more, the likelihood is strong that a national movement--in or out of town--may very well shape up.
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