New Submarkets Emerge in Core Cities

IRVINE, CA-Owners and developers of office space are seeking out new ways to gain an edge, and as a result, a variety of new office submarkets are emerging in revitalized areas within established markets, reports Rick Cleveland, managing director, research and strategy, for Cushman & Wakefield. As GlobeSt.com reported earlier this week, the firm recently held a global office webinar to discuss trends worldwide in the office sector, during which Cleveland presented.

“One emerging trend is non-traditional markets within traditional markets,” said Cleveland. “One reaction to aging inventory and occupier requirements and demand is the emergence of new submarkets within our core cities. We're seeing within major cities around the US new submarkets popping up with a variety of amenities.”

Core CBDs experiencing this phenomenon include Midtown South in New York, Boston's Seaport District and SOMA in San Francisco, said Cleveland. “These are 24-hour live/work/play environments. In many cases, we're seeing companies moving from suburban locations and paying more to be in these revitalized urban locations that offer these amenities because they're able to recruit the talent they need to keep their businesses going. They're willing to pay more for real estate due to the location and make up for it in HR. That in and of itself is a trend we'll see more of in 2014 and beyond.”

Cleveland added that the space optimization that is becoming the mantra for office occupiers means that many owners are wondering if their buildings can support the growing demand for efficient office space. “Companies are focused on improving and changing and transforming their work environments, and today's buildings need to be able to respond in order to be competitive.”

The majority of buildings in major investment markets were constructed prior to 1990, C&W research shows, and a good chunk was constructed prior to 1980, Cleveland said. “Can yesterday's buildings support tomorrow's workplace as it relates to density in particular? Owners must get older inventory up to snuff—elevators, plumbing, etc.—to keep their buildings competitive. This will be s significant issue going forward as well.”