The Downtown Office Asset Class Is Doing Just Fine
Despite buzz about mass migrations from cities, suburban office continues to play second fiddle to central business districts.
Reports of the demise of major cities’ in the wake of COVID-19—and a resulting surge in suburban office—are greatly exaggerated.
Activity in the national office market remains robust in Downtown areas, and such locations still are preferred by many corporations, according to new research from Newmark Knight Frank.
In fact, suburban office markets are lagging behind downtown areas in popularity. During the second quarter, the national office market’s negative absorption in suburban and exurban submarkets came in at 60.2% while Central Business Districts only suffered a 39.8% loss of occupancy.
Leases such as Facebook’s Manhattan agreement last month for 730,000 square feet at the Farley Building, as well as Amazon’s expansions of office space across various downtown markets, suggest that tenants are loathe to leave downtown areas given their accessibility and positive impact on employees, said Marianne Skorupski, director of research, Newmark’s Southeast region, who authored the report.
A Coronavirus-induced slowdown in CBD leasing also may not be appearing just yet because companies may be looking for more data before making any moves. It’s a big undertaking to shift a company’s offices so such a decision often takes years to make, and the pandemic, while drastic, has only been raging for six months.
Also, the emergence of a vaccine could change companies’ occupancy plans, so some firms may try to ride out the storm until they can confidently assess future space needs, Skorupski said. The spike in remote working is impacting usage too, and the picture on where that’s headed is unclear. Further, the report stated, companies are concerned about the impact of employees being too far-flung on both recruiting and corporate culture.
Major metros still aren’t fully recovered from Coronavirus’ side effects, and one fly in the ointment for those markets to come back is their dependence on mass transit. Cities like New York, where mass transit serves as the spine, are at a disadvantage with the persistence of both remote work and fears many people have about being in large groups, particularly in confined settings.
However, when comparing the performance of the Downtown office sector to suburban properties, there is not yet cause for alarm. “Data to support a major shift in tenant office demand away from CBDs does not yet exist at the national level,” Skorupski said.