Gateway City Office Sales Versus the Suburbs
Overall, there was $10.3 billion of investments in the suburbs compared with $3.3 billion in CBD locations, according to Colliers.
While there is a lot of talk about people moving to the suburbs, a look at office transactions over the last ten months suggests investors are still married to the assets in gateway markets.
But things are starting to change. Two separate Q3 reports show investment sales in the suburbs are starting to gain.
According to Yardi Matrix’s October office report, national transaction volume hit $43.6 billion through the first 10 months of the year. The average price per square foot for completed transactions increased by 3.6% from 2019 to $283.
Gateway markets were the most attractive locales for investment sales, according to Yardi Matrix. The top five markets were: Manhattan ($4.3 billion in sales at $771 per square foot), Boston’s ($4.1 billion at $437 per square foot), Washington DC’s ($3.2 billion at $316 per square foot), San Francisco’s ($3 billion at $1,129 per square foot) and the Bay Area ($3 billion at $431 per square foot
Third quarter data from Colliers International, meanwhile, points to a shift in sales in the suburbs. It noted that Q3 sales volume was $13.6 billion, up from $11 billion in the prior quarter. The year-over-year sales total is down by 52%.
Overall, there was $10.3 billion of investments in the suburbs compared with $3.3 billion in CBD locations. Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C.—the gateway markets— secured just under half of Q3 sales volume, at $6.5 billion.
But while investors are gravitating towards these assets, tenants are not quite there yet.
According to research from Cushman & Wakefield, major metros have accounted for 32% of office leasing activity so far in 2020, well within the historical average of 30% to 40% of total leasing activity occurs in gateway markets, including Los Angeles, Chicago, Washington, DC, New York, San Francisco and Boston.
In the long term, Christopher Rhie, an associate principal with the Los Angeles office of global firm Buro Happold, doesn’t see a mass exodus out of cities, though he thinks the hub-and-spoke model may work in some industries.
“Suburban office parks were very highly valued in the 80’s, but we’ve seen a reversal of those trends where they’ve hollowed out and the workforce has expressed a desire for city living,” Rhie told GlobeSt.com in an earlier interview. “In order to attract and retain talent, there has been a movement to cities and locating the offices within cities.”