The Tug of War Continues

The tension between urban and suburban areas is nothing new. For a great deal of America's history, this dichotomy has been a major concern in politics, business, culture, and of course, real estate. At risk of oversimplifying, this divide has engendered two different schools of thought, one that supports investment and development in cities and CBDs, another that sees suburbs and sprawl as essential to the nation's economic and cultural future.

While population statistics are firmly on the side of the former, as I discussed last Wednesday, the question of where to build, renovate, and invest is far less clear. The commercial real estate industry, it seems, must consider the benefits and risks of both market types.

Last week, a New York Times op-ed reignited the city/suburb debate (as if it needed reigniting) by calling attention to suburban office buildings, which since the 50′s have been a mainstay of corporate America. The article's author criticizes these properties as inefficient and inconvenient, as well as environmentally unfriendly:

[...] suburban offices are even more unsustainably designed [...] Sidewalks extend only between office buildings and parking lots, expanses of open space remain private and the spreading of offices over large zones precludes effective mass transit.

Workers in such offices, the author argues, are dependent on cars rather than public transit, and the individual sprawl of these buildings wastes energy and space. From both an economic and environmental standpoint, then, such offices are not ideal.

A blogger for the Christian Science Monitor disagrees, pointing out that modern tech companies such as Google, Microsoft, and Facebook have all shown a preference for suburban campuses.

As in many such disputes, there is no clear winner. Ultimately, commercial real estate investors and developers are going to listen to the market. LinkedIn chose to lease space in Malkin Holdings‘ Empire State Building because of its environmental appeal. But if you look at some of Toll Brothers' (NYSE: TOL) recent commercial projects, you'll see a focus on suburban developments.

If potential corporate tenants are interested in suburban office campuses, that is where the CRE industry will focus. Transportation and energy efficiency, while significant, are not the only factors; suburban areas provide stronger school districts, lower taxes, and open spaces. The economic appeal of city and suburbs will no doubt continue to fluctuate, according to changing gas prices, taxes, population, and transportation. CRE professionals must keep abreast of these and numerous other factors if they are to profit from, rather than fall victim to, this ongoing tug of war.

#CRE #economy