In this article, you’ll learn:
- How COVID-19 has shifted office space demand from cities to suburbs
- The challenges companies face with city office spaces post-pandemic
- Why large brokerages may struggle with smaller town locations
- How iOptimize Realty® provides expertise and flexibility in secondary markets
Not long ago, Fortune 500 companies headquartered in sprawling suburban and rural areas were making a move to the city. Despite the reduction in office space this required, it put them in a better position to attract millennial talent while often enjoying tax breaks and other economic incentives from downtown municipalities.
For example, in 2015, Kraft moved its headquarters from suburban Northfield, IL to the heart of Chicago; in 2016, General Electric traded the quiet town of Fairfield, CT for the trendy Seaport district of Boston, MA; and in 2018, McDonald’s followed in their footsteps, taking their worldwide headquarters from an office park in Oak Brook, IL to Chicago’s vibrant Loop neighborhood.
But then COVID-19 happened and everything changed.
COVID-19’s Impact on City Office Spaces
The coronavirus put the country into a panic and, in a matter of weeks, many office spaces were vacated (or manned by only small skeleton crews) as the majority of employees began working from home in order to slow the spread of the virus. Today, even as parts of the country begin to reopen, many of these offices remain empty. Recently, Twitter CEO Jack Dorsey told employees that they can work from home “forever”, while Google and Facebook told employees they can work from home until the end of this year. It’s likely that many other companies will follow suit.
Those companies that want employees to continue to work in the office now have to consider some new realities regarding their offices. Such as reconfiguring office layouts to allow for social distancing and creating safer shared areas, such as conference rooms and kitchen areas.
Unfortunately, owning or leasing office space in the city presents some challenges. To afford this prime location, many companies packed employees in; now, if desks must be six feet apart, there may not be enough space available; the same goes for conference rooms that need to be enlarged. Then there’s the elevator situation; most city spaces are in high rises, and allowing only two people in an elevator at a time is impractical.
Is a Rush to Acquire Rural and Suburban Office Space Coming?
Due to the challenges of maintaining commercial real estate office space in the post-coronavirus world, some companies may be eyeing a move. It’s very possible that as leases come to an end, companies that were once making city land grabs will pivot and a rush for the suburbs and other rural areas will begin. After all, these areas provide ample space to meet social distancing guidelines within an office and many spaces are one level, eliminating the need for elevators.
“I think you will see more and more tenants leave the city,” says James Farrar, CEO of real estate investment trust City Office REIT, which owns 66 office buildings in several major cities including Dallas, Denver, and Seattle. “There will probably be more satellite offices, where people don’t have to be downtown.”
But what about attracting those millennials? Potentially not a problem. According to a recent survey, nearly 45% of millennials claimed they were considering moving to the suburbs or other rural towns and away from urban areas. The survey was conducted May 22-24, which suggests the COVID-19 crisis was likely a large factor in the responses.
Choosing the Right Commercial Real Estate Broker when Seeking New Locations
Although many companies may be looking to make a move to a more social distance-friendlier suburb or town, finding an ideal location outside of the city can pose a problem for companies working with a large brokerage firm. Many commercial real estate heavyweights are only accustomed to working within large cities, “where the money is at,” and are less familiar with areas outside of the hustle and bustle of the urban jungle.
A recent conversation on Reddit illustrates this. A member of the community reached out to others in the commercial real estate industry with the following query:
I’m running through a list of 50+ NNN properties. The tenants are all solid… However, most of them are in cities that I’m not familiar with at all. That doesn’t preclude them from being a bad investment, but I was wondering about the best way to quickly evaluate a town like, say, Cottonwood, AL. I was looking for one primary metric I could use to quickly evaluate a city…
So, not only does this broker not understand the market, he or she is also unsure of where to turn. Making matters worse, many brokers with large firms can only work with others in the firm, or face penalties. Unless they have a resident expert on small towns throughout the country, companies seeking locations outside the city may not be provided with the best or most accurate information about a potential space.
In addition, if the broker isn’t familiar with the area, they’re less likely to be able to negotiate a good deal or uncover economic incentives that can save a tenant hundreds of thousands of dollars.
Working with iOptimize Realty®
If you’re considering moving your office to a secondary or tertiary market, or you simply need warehousing or manufacturing space in these areas, it pays to work with iOptimize Realty®. Unlike big-name commercial real estate brokerages, we are an independent tenant representation advisor that doesn’t ever take on landlord assignments.
In fact, we have a network of 16,400 real estate advisors that we work with so we can give you commercial real estate options in just about any location, along with the vital intel you need to make a sound decision. Even better? We’ll fly you to these locations on our own private jet.
That’s right, you can see the place in person, and be back home in time for dinner!
Want to learn more about iOptimize Realty tenant representation and our full suite of services? Contact us today!
