Although urban office markets continue to be popular with Millennials, movement to creative corporate office campuses in the suburbs is a growing trend. A recent report from commercial real estate services firm CBRE looked at vacancy rates and rental rate increases in a number of revitalized suburbs. A lack of new supply has driven rents up in the majority of these markets, while others are benefiting from outsized demand due to a concentration of specific industries, such as technology and bioscience. Below are the ten suburban office markets with the highest rent increases, according to the report:
Based on data recently released by Research firm Reis Inc that shows office markets with the biggest year-over-year changes in effective revenue per sq. ft. during the second quarter of 2016, the National Real Estate Investor provided a market snap shot of the top five best and worst performers. The tech sector continues to have a big influence on boosting performance in many office markets. And while it may not be entirely fair to single out some of the laggards on the list, there are some clear trends there as well. According to Reis, smaller tertiary markets continue to struggle to rekindle economic and job growth that will fuel demand for more office space.
Louisville took the top spot of a new list of the Top 20 U.S. Cities for Commercial Remodeling by BuildFax, a North Carolina-based company that compiles and distributes data on the construction industry. The company says it has compiled a national database that includes more than 23 billion data points of building and remodeling records. Holly Tachovsky, CEO and founder of BuildFax, said in a news release that commercial remodeling is a popular choice nationally because it helps preserve cultural history, revitalizes neighborhoods and encourages urban density, noting that it also is a "great eco-conscious alternative to new construction."
It's well-known that millennials are flocking to urban cores across the country, causing developers to rush downtown in order to meet the growing demand. Midwest cities are gaining just as much attention, and brokers say it's not just young people that are moving downtown. Consumers of all ages want to live where they can walk to public transportation, grocery stores, shops and restaurants, and the Midwest has plenty of thriving cities to meet those needs. Downtown Chicago, of course, is thriving. But Cleveland, Omaha, Nashville, Minneapolis/St. Paul and Kansas City are all booming, and there’s even a resurgence happening in downtown Detroit. However, one Midwest downtown seems to be leading them all: Louisville.
Walgreens, CVS, and other big drugstore chains have been challenging property tax assessments in courts around the country for the past decade, with little national notice. Kentucky tax officials, in particular, have been battling Walgreens over property assessments since 2012. The drugstores argue that the rent they pay their commercial landlords doesn’t accurately reflect property values, and when successful, get their tax bills slashed. The onslaught of appeals has spiked controversy, and according to Bloomberg Business, Kentucky assessors are not only concerned about the potential cost of hundreds of millions of dollars if they start losing the tax assessments on all of these leases, but they worry other national retailers will follow suit, further threatening the budgets of already struggling school districts. Last month, a Kentucky circuit court judge ruled in favor of Fayette County over Walgreens, concluding the latest skirmish in a long-running battle between national drugstore chains and tax assessors.
Last week, a judge ruled in favor of county and state officials in a property tax lawsuit brought by Walgreens Co., which otherwise could have potentially changed the way commercial properties are assessed and cost Kentucky school districts "hundreds of millions of dollars." The ruling upheld an earlier finding in favor of Fayette County Property Valuation Administrator David O'Neill by the Kentucky Board of Tax Appeals, saying the method O'Neill used to value the property "was not arbitrary or capricious, nor was it clearly erroneous."
For the second year in a row, Georgia took the top spot in Site Selection magazine's Top US Business Climates: 2014. The magazine releases its annual rankings each November. The Peach State had been a strong performer in this contest for several years, rising in the ranking steadily thanks to its Quick Start workforce training program, logistics infrastructure and economic development leadership, among other factors, according to Site Selection. The magazine's ranking methodology is as follows: 50 percent of the overall Business Climate Ranking is based on a survey of corporate site selectors who are asked to rank the states based on their recent experience of locating businesses in them. The other 50 percent is based on an index of seven criteria: performance in Site Selection's annual Competitiveness ranking; total New Plant Database-compliant facilities in 2013; total new facilities in 2013 per capita; total 2014 new projects year to date; total 2014 projects year to date per capita; state tax burdens on mature firms and new firms according to the Tax Foundation and KPMG Location Matters analysis.
Commercial real estate investors seeking higher returns are turning to smaller markets and buying suburban properties. According to Bloomberg, demand for office buildings, retail centers and warehouses in cities such as Reno, Nevada; Greensboro, North Carolina; and Louisville, Kentucky, is surging as yields shrink for real estate on the coasts and in larger cities. Properties on the outskirts of major metropolitan areas also are attracting interest, with prices for suburban offices rising faster than downtown real estate.
While class A office occupancy in downtown Louisville, Kentucky did not increase during the second quarter, it remained relatively flat and at dangerous levels. According to the Louisville Business News, the class A vacancy rate in the central business district declined nominally to 16.1 percent at the end of the second quarter from 16.2 percent in the first quarter. This rate is expected to increase once the new 200,000 square-foot Nucleus Innovation Center opens up in the fall.
Sequestration and its $85 billion in federal budget cuts planned for this year will bring significant challenges on the U.S. economy and the commercial real estate recovery. According to the National Real Estate Investor, the forced reductions that began March 1st will have real consequences for the U.S. economy, including eliminated and reduced government contracts, reduced private and public sector jobs and furloughed workers.