The world of commercial office space is changing. The question is not only how its changing but where its changing.
In the 1940’s and 50’s the returning GI’s left the cities to buy their dream homes in the suburbs. The developers were more than happy to accommodate and help them spend their GI mortgage money. Thus began the suburban sprawl. It was held together by a rapidly growing network of roads and the American auto industry exploded as cars became the preferred means of transportation. Businesses soon followed to be near this growing population. Office buildings were built as fast as possible in the suburbs to accommodate the demands of insurance, financial, legal, accounting, etc., companies who wanted offices near their owners, employees and customers. These office buildings were built based on the available parking. Public transportation was not part of the equation. For over 50 years this cycle repeated itself throughout the country and the office markets boomed in the suburbs.
All of this began to change in the first decade of the new millennium. The millennials were first entering the working world and were breaking from their parent’s lifestyle. They wanted an edgier lifestyle free from the burdens of ownership – no cars, no houses. Raised on digital social connectivity, they wanted the social connections in real life. They wanted a work/lifestyle incorporating working, living and playing in the same proximity. So they moved to major cities that could accommodate their lifestyle such as NYC, Los Angeles, San Francisco, and Chicago. Smaller cities also got in on the action: Boston, Denver, Salt Lake City, Nashville, Austin, Portland, and Phoenix. Cool neighborhoods such as the meat packing district in NYC were in demand. These cities offered places to socialize: restaurants, bars, music venues and places to hang out. They offered biking, walking and public transportation. The mayors of these cities were happy to accommodate by developing bike sharing programs and networks of bike lanes. Thus the millennial population in these cities exploded.
The tech industry followed driven by their needs for millennial talent. These tech companies moved from the burbs to the cities because that’s where the millennials and other tech companies were. The cities had the buzz and offered everything from elite universities to public transportation. As a result, the tech industry grew exponentially in the cities while the suburbs declined.
The Northeast is a case-in-point. New York City became the fastest growing office market in the country after San Francisco. Major NYC companies, instead of moving to the suburbs such as Long Island, Westchester or New Jersey, moved to the once defunct Downtown and Midtown South markets. They leased millions of square feet and helped to reduce the NYC vacancy rate down to 7.7%. Google led the way opening its massive 2.9M square foot building in Chelsea in 2010. Condé Nast, Time, Inc., Harper Collins and 21st Century Fox have followed to the World Trade Center and the Financial district. Boston is not far behind with its vacancy rate falling to 8.8%. General Electric, LogMeIn, Autodesk and Converse and many others made the move from the suburbs to downtown Boston. The surrounding suburban areas have not fared as well. Hartford has an 18.1 vacancy; Westchester’s vacancy is 24.4%; Fairfield County’s vacancy is 24.4% and New Jersey’s vacancy is 24.6%. Long Island’s office market has remained comparatively stable with its vacancy rate hovering around 9%.
The question is how long will this new paradigm last? It has been predicted that once the millennials reach forty years old they will start families, want houses and move to the suburbs. Since the millennials are defined as the demographic born between 1980 and 2000, the first wave of 40-year-old millennials won’t reach us until 2020. All we can do is wait; the countdown is on; only time will tell.