Newmark’s Winning Office report looks at the U.S. office market in a way that is fundamentally different from many other explanations. It nods to the pandemic wave of work-from-home and hybrid work (by mid-2024, 80% of U.S. companies offered some form of remote work), cuts total space while moving to premier quality, and the bifurcation of offices into Class A and A+ that were doing well and B and C doing … worse.
The interesting approach here is to look at submarkets and break them down into three life cycle blocks. Up-and-Coming (the childhood stage) gains attention for retail amenities, growing residential, and the possible status as the subsequent spillover for office development. The current office inventory is low at best.
Emerging-Maturing (adolescence to early adulthood) has grown in office inventory and occupancy over the last ten years. This is the stage at which Fortune-ranked companies are moving in, and neighborhoods “tend to be safe and/or affluent.” This is the most volatile category. To move to the next stage, attracting and retaining high-profile companies is required.
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Mature and Established (adulthood) have an established office base of buildings that are mostly 40 years old. New development tends to be infill projects. Fortune-ranked companies have significant presence and “business clusters aligned with the region’s leading industries dominate the landscape.”
Newmark then found the general characteristics of the top-performing submarkets in each of the three categories. For Up-and-Coming, some of the listed factors are housing costs that are relatively lower compared to nearby, more established neighborhoods; noticeable population growth; a growing retail base; rising property prices; evolving infrastructure; available land for development; government incentives or favorable tax structures; and mostly local firms in offices. They add that it is generally safe or becoming safe for urban areas, gentrification is occurring, and there’s the opportunity to capture spillover office demand.
Up-and-Coming submarkets are relatively rare. The only example Newmark offered was Miami’s Wynwood/Design District. For most potential examples, progress stalled since the pandemic as tenants, developers, and investors shifted to more established locations.
Emerging-Maturing have growing populations; are generally safe; offer substantial housing development; attract institutional capital; have available land for teardowns; are near affluent communities; are near where senior executives live with good schools and near universities; have an established retail base; offer better tax environments; are reasonably close to a major airport; are a reasonable distance from established office corridors, from which they lure tenants; and have a mix of local firms and Fortune-ranked companies with notable footprints.
Newmark identified 18 leading submarkets of this type, including Mission Bay in San Francisco; Legacy/Frisco in Dallas-Fort Worth; Tempe near Phoenix; the North Look in Minneapolis; King of Prussia near Philadelphia; Far West Side of Manhattan; and Utah’s Tech Corridor. The firm said the complete list was only a sample and not intended to be comprehensive.
Mature and Established characteristics include safe and walkable; near or in affluent communities; nearby substantial apartment development; universities nearby; dominant presence of institutional capital; abundant retail amenities; public transit stops; numerous hotels; reasonable proximity to a major airport; nearby major cultural institutions; mature office inventory that is renovated every 15 to 20 years; and infill development is the only way to add office supply. The combination indicates an urban setting.
Some examples are the South Financial District in San Francisco, Century City in Los Angeles, Uptown/Turtle Creek in Dallas-Fort Worth, Chicago’s West Loop, the central business district in Washington, D.C., Park Avenue in Manhattan, and Back Bay in Boston.
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