Why Commercial Real Estate is the Perfect Use Case For No-Code Tech

Although most metropolitan markets continue to suffer low office occupancy levels, rental rates for Class A properties have shown little indication of the sector’s troubles. The flight to quality, be it in the hard-hit central business districts or the suburbs, has had a bolstering effect on the price per square foot for premier accommodations in many cities. We wanted to better understand how suburban offices are doing compared to their urban counterparts so we looked at the difference in rental rates between the two. 

When looking at top-tier and secondary markets, the fact that not all metros draw a clear line between the downtown core and the suburbs muddies the suburban/urban rental-rate picture. Los Angeles, for example, now counts Downtown and Century City as its CBDs and boasts a hefty list of cities as part of its suburbs. And in New York City, Manhattan is the de facto central business district, while the remaining boroughs serve as part of the suburbs, which can also include areas of Connecticut and New Jersey. As for those markets that have distinct boundaries between the big city and the ‘burbs, the gap in Class A rental rates varies from moderate to substantial.

In the United States, average Class A rents in the suburbs have experienced year-over-year increases since the third quarter of 2022, while CBD rental rates have recorded a year-over-year decline in rents—until now. As of the second quarter of 2023, Class A rents in the suburbs and urban centers are both in growth mode, having increased a respective 1.9 percent to an average of $34.56 per square foot and 0.4 percent to an average of $52.93 per square foot year-over-year, according to research from Colliers. On the national level, the disparity in Class A office rents in the suburbs and city centers doesn’t exceed the $20 range. But when making a comparison within some of the country’s leading markets, the trend is that there is no trend.

City Average Class A Asking Rent CBD Average Class A Asking Rent SUBURBS
MIAMI $78.08 $50.38
BOSTON $77.75 $31.39
WASHINGTON, D.C. $74.01 $39.29
AUSTIN $71.24 $54.07
Source: JLL, Q2 2023

Examining Miami, Boston, Washington, D.C., and Austin, Miami tops the list for the most expensive Class A urban core rents at $78.08 per square foot, but those interested in high-end space in the suburbs can save a pretty penny, as the rents outside Miami average at $50.38, nearly $30 less per square foot than CBD offerings. Despite the discounts available beyond Miami proper, tenants have been showing a preference for the city centers as evidenced by the year-to-date positive net absorption of more than 40,000 square feet in the Class A sector, compared to the approximately 80,000 square feet of negative net absorption in the suburban Class A pool. Yet, for all the activity in the heart of the city, it was the suburbs that recorded the largest lease of the second quarter when FIFA committed to 69,000 square feet in Coral Gables.

Class A rental rates in Boston’s CBD are just a bit less than those in Miami at $77.75 square feet. But the difference between urban and suburban Class A rental rates is far more substantial than that seen in Miami, with a gap exceeding $45 per square foot. In Washington, D.C., ongoing downsizings, consolidations, and relocations have done little to impact the rental rates for Class A office space downtown, where the asking rate averaged $74.01 in the second quarter. The nation’s capital is a unique market, as its suburbs are located outside the District in two different states, Maryland and Virginia. Presently, two cities in Suburban Maryland and one in Northern Virginia are vying to become the new headquarters site of the Federal Bureau of Investigation, which has maintained its home base in Washington, D.C., since the agency’s inception in 1908. As noted in a July 2023 statement on the site selection process, cost is the main criterion. The combined average cost of Class A office space in Suburban Maryland and Northern Virginia is just $39.29, approximately 45 percent less than premier office space in Washington, D.C., proper.

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Austin’s office market doesn’t have the same cachet as Washington, D.C.’s, but the city has evolved into a key office destination over the last few years, and it has the high rents to prove it.  Austin’s Class A rental rates far exceed the national average at $71.24 per square foot. The Texan city is not on par with metros like Boston as a top-tier market, but its Class A suburban rents would indicate otherwise. Of the five cities examined, Austin has the highest suburban rents, with asking rates averaging $54.07 per square foot, marking a mere $17 difference between city center and suburban Class A prices.

Overall, the suburbs and the downtown core both remain hobbled by the post-pandemic impact on occupancy levels, but the suburbs are less so. However, the lower suburban vacancy rate has little to do with a great flight to the suburbs as companies make the flight to quality. According to a PWC 2023 Emerging Real Estate Trends report, “It’s not that companies are moving offices from urban areas to the suburbs, but that fewer companies are downsizing in suburbs than in urban areas.” Still, it’s hard to ignore that some major corporations have opted to forego the central business district for the suburbs over the last couple of years, though such moves are most frequently from one state to another as opposed to within the same metropolitan area. Boeing announced in 2022 that it would change its global headquarters from Chicago to Arlington, Virginia, a suburb of Washington, D.C. Earlier this year, Tysons Foods relocated its corporate offices from Chicago to Springdale, Arkansas. When companies relocate to the suburbs, they do so for a number of reasons like office cost savings and access to the sizable talent pool that resides outside of the city. Bu regardless of the advantages of relocating outside the urban core, a great migration to the suburbs does not appear to be on the horizon.

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Mike McNamara

Mike McNamara

A Las Vegas Realtor since 2008. Mike has a wide range of knowledge around all things Las Vegas.

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