Real Estate Giant: Suburban Office Parks Increasingly Obsolete

What tenants want in an office building is changing, and the old model of the isolated suburban office park is going the way of the fax machine. That’s according to a new report from Newmark, Grubb, Knight and Frank [PDF], one of the largest commercial real estate firms in the world.

Suburban office parks are losing their luster, industry analysts say. Photo: Wikipedia
Suburban office parks are losing their luster, industry analysts say. Photo: Wikipedia

The old-school office park does “not offer the experience most of today’s tenants are seeking,” according to NGKF. As a result, the suburban office market is confronting “obsolescence” on a “massive scale.” More than 1,150 U.S. office properties — or 95 million square feet — may no longer pencil out, the authors estimate, though a number of those can be salvaged with some changes.

“Walkability and activated environments are at the top of many tenants’ list of must haves,” the report states. Office parks in isolated pockets without a mix of uses around them must have “in-building amenities” — including a conference center, a fitness center, and food service — to remain competitive, according to NGKF: “If tenants are not going to be able to walk to nearby retail or a nearby office property to get lunch, they had better be able to get it at their own building.”

The study took a close look at suburban office submarkets in and around Denver, Washington, San Francisco, Chicago, and New York. In the “southeast suburban” Denver office district, for example, office buildings within a quarter-mile of the new light rail line had a 1.7 percent vacancy rate. For those outside a quarter-mile, vacancy rates were nine percentage points higher.

NGKF’s findings don’t mean that office tenant preferences are in perfect alignment with walkability, however.

Parking was also important to the marketability of buildings in suburban Denver. The report notes that a lot of older management personnel prefer to drive, while younger workers want transit access. So buildings that offered both were in the highest demand.

  • Asher Of LA

    ‘NGKF’s findings don’t mean that office tenant preferences are in perfect alignment with walkability, however.’

    Yeah, it seems like it’s not trending towards real urbanism, but to ‘drive-to urbanism’ at best. So instead of having to drive to work and to lunch, you’re only driving to work. I guess the real surprise is why anyone thought isolated office parks were a good idea to begin with, compared to sandwiching office and light retail together.

    And considering how suburbs often don’t like multifamily housing because they think it will entail spending lots of money on educating children living there, these new mixed use commercial spaces won’t have residential.

    Example:
    http://www.twincities.com/localnews/ci_29105657/days-numbered-woodburys-state-farm-dinosaur

  • Mike

    Surprise surprise… It’ll be interesting to see what comes of Orange County, North County San Diego and the Inland Empire which already have a glut of suburban office parks.

    Adaptive reuse is popular among industrial buildings and many abandon malls, I wonder if they can conjure up something for these ’80s relics

  • disqus_B1vk25qxNZ

    Office parks are located in exurbia because of lower land prices and municipal taxes compared to urban locations.

    The hidden subsidy is shouldered by the employees who need to buy, insure and maintain a reliable car that can cover the usual long commute.

  • ja_1410

    Office parks are located where employees live and want to go. In most US cities it is in the suburbs. The decline of office space has more to do with decline of US industry and businesses cutting their workforce by improving efficiency.

  • SimonSezz

    Actually here in Chicago there is a trend of offices moving into the city even though most of the workers are living in the suburbs. Housing prices near the rail lines have jumped as a result.

  • neroden

    Employees certainly do not want to go to the suburbs for work. That’s a dreary horror trapped in your office all day.

    You want to be able to get out of your office at lunchtime and get a decent lunch, and to get dinner afterwards, and maybe go to a show…

    Even employees who want to live in the suburbs prefer to work downtown. If they can be teleported there. 🙂 Fast train service is second-best to teleportation, which is why houses in suburbs near the commuter rail stations are super-expensive.

  • neroden

    Isolated office parks were basically a case of companies looking for very cheap land.

  • ja_1410

    Vast majority of US cities has poor, uneducated people living in the city and middle class, educated workforce located in the suburbs. Cities like Philadelphia, Washington DC, Detroit, Saint Louis Baltimore etc. Bullshit that employees from suburbs want to work in the city. Companies are attracted to cities by special low taxes deals so they force employees to travel from suburbs, often 20 and more miles one way. Employees also end up picking up the tab by paying high city taxes for the “privilege” of working in the city. Besides in many of those cities the best restaurants are also in the suburbs. So going outside in the city to eat is not only poor quality of food but also risky of being mugged or carjacked. Why would I want to spend hours commuting in traffic jams to get to the work place that I rather not leave for lunch for safety and food quality reasons and in addition end up paying taxes for the fact that I’m working in this place? In the suburbs in most cases there are no taxes for working there.

  • ja_1410

    This is often the effect of social engineering. Governments are trying to revive dying city centers so they offer large tax incentives to corporations to attract offices to the city. Employees are paying the price by long traffic jam commutes and in a lot of cases by picking up the tab and paying city taxes for the doubtful privilege of working in the city.

  • Matthew

    I hope you enjoy your lunch at Applebees. I grew up in the suburbs and want nothing to do with them.

  • ja_1410

    There are myriad of non chain fine restaurants in the suburbs. Unlike McDonald downtown.

  • neroden

    I don’t know what suburbs you’ve been visiting, but you’re simply wrong.

    Maybe you haven’t been in an actual city, or an actual suburb, since the 1980s. Since your perceptions of crime are also completely out of whack.

    Downtown is typically a lot safer than the suburbs these days. It’s almost certainly due to the removal of lead from gasoline in the late 1970s.

    http://www.motherjones.com/environment/2013/01/lead-crime-link-gasoline

  • neroden

    Absoutely backwards. This is the result of the removal of social engineering; local suburban governments *were* offering large tax incentives to coprorations to locate in the suburbs, and that stream of money has dried up.

  • ja_1410

    Not true. Dying cities are trying to attract business to get cities revived at the expense of the employees. Example GM, who bought office park in the center of Detroit for 1/10 of the building value.

  • ja_1410
  • ja_1410

    Here is more extensive:
    http://www.neighborhoodscout.com/neighborhoods/crime-rates/25-most-dangerous-neighborhoods/

    I don;t see much of a suburbs here. Your wishful thinking is not supported by reality.

  • nullbull

    The housing market in areas where significant amounts of time (growing all the time) are spent in the car to get where you need to go.

    In housing it will take longer, however, because of people and their stuff. Businesses have to pencil out, so putting the same # of people in a smaller space makes a compelling case sooner than a family re-locating so as to avoid spending their lives in their cars.

  • SkylerC

    In Irvine, the heart of OC suburban offices, they have already started adapting office parks by adding housing, retail, hotels, and services. Developers have been replacing what was once acres of parking surrounding office buildings into retail and housing while keeping older office buildings. So many workers now walk to work, shop, and eat all within the same superblock. Check it out: http://parkplaceirvine.com/futuredevelopment/

  • SkylerC

    Irving in Orange County is doing it: http://parkplaceirvine.com/futuredevelopment/

  • Mike

    Yea I noticed that, the site has seen a lot of development since Fluor Corp left. It’ll be interesting to see how the rest of the area changes, I don’t think it’ll be as easy along jamboree

  • MackeyDIngo

    Washington DC has poor uneducated people living in it? Suburbanites dont want to work in Center City Philadelphia?
    Both those statements are incorrect.
    DC is one of the most expensive places to live, uneducated people arent usually shelling out millions for townhomes.
    The Philadelphia regional rail service, already one of the nations largest, is expanding due to increased demand from commuters.

  • MackeyDIngo

    The suburb is a product of social engineering. Suburbs could not exist without massive gasoline subsidies, and the benefits given to suburban developers. Not to mention all the tax money spent to put in roads and get utilities all the way out there.

  • ja_1410

    O yeah. Mythical oil subsidies. Guess what. My suburbs exist since 1789.

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