What five office markets nationally are the next hidden gems? The answer is Nashville; East Bay, Calif.; Raleigh-Durham; Denver; and Salt Lake City, according to a newly released report from global brokerage services giant JLL titled “Office Perspective: The NERDS.”
Those five markets stand out as having rents and vacancy levels below the national average, absorption rates above the national average, and employment and demographic movement growing or forecast to grow at 1.5 to two times the national rate.
Affordable homes, affordable office space, and a high quality of life are drawing more people, more specifically Millennials, to these markets. Since 2010, these markets have grown by 5.1 percent. That’s nearly double the national average. In addition, a recent survey conducted by the Demand Institute, a non-profit organization, reported that 48 percent of Millennials prefer the suburbs for their next home. The survey was based on 1,000 respondents.
Another major draw to moving to these markets is the relatively low cost of living compared to some of the big cities. For example, the cost of living in these five markets is on average 36 percent less than San Francisco, 41 percent less than Brooklyn and 16 percent less than Austin, with housing as much as 75 percent lower in some cases.
The NERDS’ generation of gross metropolitan product (GMP), which currently stands at $589 billion, has more than tripled since 1990. Additionally, its 14 percent increase over the past three years is 2.7 times faster than its population growth.
The report notes that there are also opportunities for investors and space occupiers in these areas. Within the NERDS, the average direct asking rates are 21.1 percent lower than the U.S. average, and far below markets such as New York ($64.91 per square foot), San Francisco ($60.91 per square foot), Washington, D.C. ($51.20 per square foot) and Boston ($51.18 per square foot).
And if you are a corporate occupier looking to relocate or open a satellite location, Class A rental rates on average in these markets are 35 percent lower than the overall U.S. average.
For investors, pricing per square foot for trophy buildings in these markets averages between $200 and $400 per square foot compared with similar properties in gateway markets such as New York and Washington, D.C. that can fetch as much as $1,563 per square foot and $1,100 per square foot, respectively.
Office investors in NERD markets also benefit from higher return cap rates, than in gateway markets. The NERDS are offering a higher return in general with cap rates conservatively ranging anywhere from 5.5 percent to 7.5 percent.
Click here to read JLL’s full report.
— Danielle Everson