By Orlando Lee Rodriguez
With private sector jobs continuing drive population growth in the City of New York, suburban brokers and developers may have some concerns that the “natural progression” of urbanities moving “onward and upward” to the suburbs may be a thing of the past.
Indeed, the numbers don’t lie. For the first time since the 1920’s, U.S. cities have begun to grow at a faster rate than their surrounding suburbs, according to the Brookings Institute. From 2010-2011, the five boroughs of New York City outpaced the suburbs by almost double the growth rate.
“I think that there are a lot of people who want to get out of the rat race of the long suburban commute,” said Thomas Fink, senior vice president at Trepp, LLC. “I would not be buying suburban office.”
Speaking at a New York State Society of Certified Public Accountants special seminar for real estate professionals on the state of the CMBS market, Fink gave advice to those in the room from what he called the “diner survey.”
To get a pulse of what is going on in the suburbs, Fink said that one need look no further than the commercial property that surrounds suburban diners. Those areas, once filled with a local workforce, now sit empty, as young suburbanites opt for technology jobs in Chelsea, the Meatpacking District, Lower Manhattan and Brooklyn.
“State Farm used to have its operational center in Wayne, New Jersey. That building sat empty for 20 years,” he said. “Just this month, they tore it down. That’s the challenge. The downside of that is that when the tenant leaves, 99 times out of 100, you are going to tear it down.”
Beyond their distant locations, part of the problem for suburban office space analysts say, is that smaller companies have begun to utilize collaborative spaces in order to bring down costs and work alongside like-minded companies.
Those spaces and populations, for the moment, are located in the city.
“We are at 500,000 square foot today in New York,” said Adam Neumann, the founder of WeWork, a company focused on providing collaborative work space for entrepreneurs. “We’ll be at 800,000 s/f by the end of the year. I am personally planning to take 1.5 to two million square feet and I’m moving to Brooklyn next year, and I’m going to take as much as I can grab there, too.”
However, hope is not completely lost for those land owners who wish to develop tracts outside of the city.
Specific segments of the population still desire the greenery, space and the slower pace that only the suburbs can bring.
“I think who you find [moving to cities] are those people on both ends of the child raising spectrum,” said Fink. “It’s young people who don’t have families and older people whose families are grown.”
Of that group in the middle, young parents with school aged children, the suburbs continue to remain attractive because of the superior school systems. For example, 54 percent of New York City freshmen graduated high school in four years compared to 83 percent of students in the surrounding suburbs, according to the New York Times.
“I think it’s still a challenge for a family with children to decide to make that choice between staying in the city and moving to the suburbs,” said Fink. “It’s driven a lot by the children’s education.”
That may bode well for retail strip and large indoor malls that provide services for families who move to the suburbs. But what to do with other large tracts of suburban land, particularly acreage that once held suburban offices?
Depending on where the land is located, there still may be big opportunities available, according to Fink. But they don’t involve office space.
“I still like industrial,” said Fink. “But you have to make sure it’s in a location where the transportation system is multi-volume and really good, 50 to 100 miles from a major port, Maybe central New Jersey, where you can bring in big containers and break them down.”
“Don’t forget what’s going to happen in about two more years, they will finish the widening of the Panama Canal,” he said. “They are going to bring in ships that have 50,000 container holders, so you are not going to be able to break that down in the ports. You’re going to have to get them off the ship, move them inland and then break them down.”