Report: Most new office development in the U.S. in the past two decades was in the suburbs

By Ashley Fahey, American Business Journals

Despite a shift back to city centers in the 2010s, most new office development so far in the 21st century has been in the suburbs.

A recent study by CommercialCafe found 1.8 billion square feet of office space has been built nationally since 2002, with 85% in the top 50 metropolitan markets. Suburban areas were home to 67% of that new office development.

New suburban office made up more than 1.2 billion square feet across nearly 18,000 properties nationally.

CommercialCafe attributed suburban office outpacing urban to cheaper land and a penchant for campus-style design among corporate tenants.

Patrick McGregor at CommercialCafe said markets with developable land, especially in places like Houston and Phoenix, have the infrastructure to support farther-out, suburban office campuses.

He said he felt the flight-back-to-urban narrative of the 2010s was more around where people were choosing to live instead of strictly office development. But markets that saw big corporate migration activity, such as Austin, Texas, and Charlotte, North Carolina, built up their central business districts more prolifically than others.

The Pacific Northwest and Northeastern regions also had more office development in their urban and central business district areas. Suburban development accounted for only 42% and 47% of office development, respectively, in those regions.

The Northeast added the most office space in the past two decades, with 2,362 properties and 300 million-plus square feet.

Most cities in the Southeast and Southwest saw a larger concentration of suburban office being built relative to urban and CBD office space. The onset of the Silicon Valley tech campus, which companies in other industries have since tried to emulate, also contributed to a boom in that typically suburban-style office project in the 2000s and 2010s.

“Certainly, that has had a huge influence on how companies are choosing their locations and where developers are noticing the attention is being drawn,” McGregor said.

Charlotte and Washington, D.C. added more urban and CBD office than most other U.S. cities that CommercialCafe analyzed. Nearly 50% of new D.C. office space was in urban and CBD areas while Charlotte’s CBD alone saw nearly 7 million square feet of new office space open in 14 properties in the past two decades.

The next two decades will be post-Covid-19, a pandemic that has scuttled expectations of where and how to work, and disrupted multiple commercial real estate sectors.

Less office space is being built these days, too. Jones Lang Lasalle Inc. (NYSE: JLL) found in its fourth-quarter office-market report that 2021 ended with less than 100 million square feet of new office space underway nationally. That’s the smallest amount actively underway since 2015. In 2021, 55.4 million square feet of office space delivered nationally.

Only 2.4 million square feet of office space across 11 buildings in the entire U.S. broke ground in Q4 2021, most of which was build-to-suit development or that already had an anchor tenant signed on.

Among major markets tracked by JLL, New York had the most construction underway at the end of the year, with 20.8 million square feet. Boston had the next most, with 6.1 million square feet, followed by Silicon Valley, at 5.8 million square feet.

Four markets had no office construction in late December: the Hampton Roads region in Virginia, Long Island in New York, North San Francisco Bay and Westchester County, New York.

McGregor said CommercialCafe doesn’t forecast but, anecdotally, data the firm tracks suggests office development will pick up again nationally in the coming years. Whether that’s majority CBD, urban or suburban is still to be determined but, he added, commercial real estate as an industry tends to be a slow-moving beast. The projects in permitting or planning now that’ll eventually move forward have likely been in the works for a few years now.

“The trend we’re seeing (is that) suburban development is likely to continue into the future,” McGregor said. “Now, if there are changes in the collective mindset, whether through technology, transportation or mass transit, that allow people to move between places easier and faster, those could have impacts on where you see nodes pop up. I don’t see a large change happening, in the next two to three years, of where offices are going to be concentrated.”