CHICAGO—As reported in GlobeSt.com yesterday, JLL's 2015 Digital Skyline report shows that the gap in rental rates between the top office properties in the US and everything else has widened to historic proportions. And although the premier spaces in many markets still have some room for even more rent growth, the tremendous expense has also helped push a growing segment of tenants away from trophy buildings in favor of non-core class A and class B buildings, inside and outside of traditional CBDs.
“In the past five years, we've seen increased growth from tech companies,” architects, advertising firms and many other companies involved in creative work, Julia Georgules, vice president, JLL Research, tells GlobeSt.com. “In general, they want architecturally-significant space,” and believe that a building's character can have an impact on company culture.
This desire leads the creative types to look for spaces on the peripheries of their downtowns, because the historic buildings with the proper character “are not right in the central business districts; they are in areas with a mix of property types.” She points to Chicago's Fulton St. Corridor and Manhattan's Midtown South as perfect examples.
The lower rents found in the peripheries, she adds, also gives tenants “really great opportunities to spend more on the interiors” and create unique identities.
In the past three quarters, class B office leasing has surged among scientific and technical companies, JLL found. Of total office leases over 20,000 square feet, 25% of the office space rented by these companies was in class B, versus 6% in trophy buildings.
Among the notable transactions fitting this trend are Buzzfeed's 200,000 square-foot lease at 225 Park Avenue South in New York's Midtown South submarket and Pinterest's nearly 98,000 square foot lease at 651 Brannan Street in San Francisco's South of Market District.
Creative companies also “like the idea of adaptive reuse and contributing to neighborhood revitalization,” Georgules adds. “As the gap between trophy and non-trophy space continues to grow over the short-term, we actually could be reaching a peak inflection point based on future demand patterns favoring space over building.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
