At a New Year’s Eve party, I was talking to a business exec running a tech company located in a suburban office building. He was complaining about the number of times he would interview a person who would say he wasn't crazy about taking the subway and then a bus all the way out to the ‘burbs every day. The exec got increasingly frustrated and at one point responded “So get a car! That’s what grown-ups do when they get jobs!” The candidate responded that he didn’t know how to drive, didn’t have a license, and would keep looking for a job that allowed him to use a bike or transit. This scenario has played out more than once, so the company is now looking for new office space downtown. The suburban office building in his business sector is functionally obsolete. It may well become what we used to call a "see-through" — a glass box with nothing inside.
A new study (PDF here) from real estate firm Newmark, Grubb, Knight and Frank confirms that this kind of obsolescence is becoming common. In fact, of the six factors signifying obsolescence, it's perhaps the most important and the least curable.
Suburban office buildings that have become obsolete due to car-centric and removed locations — and which do not have some factor that will remedy these traits in the future (such as a planned transit station or new highway exits) — are unlikely to achieve market-average rents as leases roll. In extreme cases, properties that are incurably obsolete — primarily those at undesirable locations or with building sizes or for plates that tenants now find either too large or too small — may never lease again.
The study notes that there's always a market of some kind for obsolete space: “There will always be extremely value-conscious tenants who set cost as their most important requirement. As a result, there will always be some market share for value-priced properties, even if those properties do not conform to the current trends of transit-adjacent, amenity- laden space.”
But as a commenter on Angie Schmitt’s article in Streetsblog noted, “The hidden subsidy is shouldered by the employees who need to buy, insure and maintain a reliable car that can cover the usual long commute.” That reduces employer choice of candidates significantly. Angie also notes that there's a real generational divide: "The report notes that a lot of older management personnel prefer to drive, while younger workers want transit access. So buildings that offered both were in the highest demand."
Fewer young people are getting licenses. (Photo: via TreeHugger)
Notwithstanding Jim Motavalli writing that Now millennials say they do want to drive, fewer of them are actually getting drivers licenses. All the data I can find ends a few years ago before the recent significant drop in fuel prices, and I know that there has been a bump in car sales and miles driven, but as a former real estate developer, I can attest that the office market is a leading indicator, not a trailing one. And the message is that young people still would rather not drive to work.