Is Crime the Top Indicator of Where (Not) to Locate an Office?

In this article, you'll learn:

• How crime influences office location choices and return-to-office rates.
• The impact of high crime on office occupancy and property values.
• The trend of companies moving to safer, suburban communities.
• How tenants can negotiate better lease terms in a crime-affected market.

In a post-pandemic leasing environment, priorities have shifted. Offices are under higher scrutiny because well, if employees don’t like the commute, the area, or the seating arrangements, they can opt for remote collaboration.

In this Flight to Quality, certain factors emerge in the new demand for office buildings. Premium amenities, welcoming facilities, and an area surrounded by a culture of safety are now the standard for a well-populated office.

And although crime was always a deterrent for a successful office location, now it may be the central indicator of how well a building may perform. So, if a more robust return to office is your goal, it may be time to analyze how the area surrounding your properties is harming occupancy levels.

Let’s explore how an area’s crime influences its office market.

The Hardest Hit Buildings are in High Crime Areas

Safety has become a number one driver of where to place an office. Because in the shifting priorities of recent years, what has stayed the same is the expectation that people are being taken care of. And the data shows that there is now a tangible divide in the return-to-office rates across areas of high and low crime.

Not only are dangerous cities unlivable for citizens, but they are also extremely expensive to taxpayers. This is a double-edged sword for businesses looking for safe and affordable neighborhoods for their commercial real estate.

Learn the other factors that will make or break an office's location in the free course below. 

An area’s crime risk also goes hand-in-hand with the quality and quantity of local amenities. Closeness to restaurants, shopping centers, or other useful spots is a key external driver behind a building’s suitability. A lack of options in a high-crime environment will significantly drive down occupancies.

High Crime Drives Away Business

What better place to put this theory to work than San Francisco? A study conducted by Trepp attributes partial blame of the city’s slow return-to-office rate on rising crime.

San Francisco, which has reached a 30% vacancy rate in some areas, is largely a liability in the Office Apocalypse. The 27% citywide vacancy average represents far over what it was in 2019 when the vacancy rate lingered around 5%.

As a tech haven, the city suffered from plummeting demand when the industry pulled back leasing in favor of hybrid / WFH arrangements. But Trepp research proves that this pullback was amplified by rising crime rates. Business activity is notably declining in The San Francisco neighborhoods surrounded by high-crime areas.

High crime is draining the country’s business hubs of their vitality. Because areas with high crime have resounding lower occupancy rates across the board. Low demand reflected by low utilization is rapidly devaluing the office asset class. In turn, this has led to a fire-sale of properties in the highest crime cities.

Most recently, the 286K SF tower at 350 California Street, (which had been on the market since 2020) sold for a 75% discount. The original asking price of $250 million was downgraded to just $60 million.

The issue is compounded with a trillion-dollar wall of debt on the horizon since areas of low occupancy also have the most CMBS debt on the line.

Crime Devaluing Offices in Other Cities

San Francisco isn’t the only major city suffering from record property devaluation and low occupancy while crime escalates. High-profile cities including Manhattan and Chicago have also experienced significant pullback in accordance with criminal activity.

For instance, last summer in New York City, a string of high-profile attacks on commuters, caused a firestorm of corporate activity highlighting the safety of public transport. After a 40-year-old consultant for Deloitte was killed in the Times Square subway station, the city’s CEOs mobilized to do something about it as employees were reluctant to commute, over valid safety fears.

This is a sentiment shared by Ken Griffiths, CEO and billionaire-owner of hedge fund, Citadel, who moved its headquarters away from Chicago after a series of incidents put the safety of employees at risk. The relocation to Miami was cited as a better corporate environment as the CEO had also expressed disdain for growing crime in Chicago.

“If people aren’t safe here, they’re not going to live here. I’ve had multiple colleagues mugged at gunpoint. I’ve had a colleague stabbed on the way to work. Countless issues of burglary. I mean, that’s a really difficult backdrop with which to draw talent to your city from." - Ken Griffiths.

Perhaps this is why we’re still observing an exodus from metropolitan areas in general. There has been a notable rise in interest in suburban commercial real estate as businesses lose interest in cities. Learn The 5 American Cities with the Most Crime.

As remote working arrangement remains a top motivator for finding a new job, employees are less likely to accept positions that demand commuting. And if people don’t feel safe or comfortable commuting in, forget about it.

That’s why so many companies are opting for Live-work-play style locations to place their offices. With easily accessible offices, recreation centers, and external amenities in a self-contained, safe community, these arrangements bring to the table the strongest benefits of both suburbia and urban living. This draw has increased the demand, and the number of these developments has quadrupled in recent years.

The point is that there are other alternatives that are quickly and dramatically rising in corporate popularity. So, if you’re a tenant struggling with maintaining a return-to-office and occupancy rate that makes the square footage worthwhile, it’s time to consider how the location is implicating its success.

What Office Tenants Should Know About Crime

With the changing expectations of the last few years has come a massive corporate exodus. Businesses in crime-ridden neighborhoods have reached a breaking point. As a result, they are fleeing their old regions of high cost of living, taxes, and crime. This is also partly because they are following population migrations since people have more freedom to be mobile with remote work. Employees don't want to put up with dangerous areas and are actively leaving for other jobs that can guarantee safety (which really should be a bare minimum for CRE).

It is critical for business owners to be aware of these trends when making decisions about where to locate their businesses. Because alternatively, the slowing demand gives tenants who do want to be located in these cities a new opportunity to capitalize on the slew of properties hitting the market.

It’s a tenant-favored market. This means, if you know how to balance the demands of your commercial real estate portfolio with the market’s evolving trends, you can negotiate the best office lease, terms, and price possible.

Enroll in the course below to learn how to balance all the factors to fully optimize your office space!