Leigh Gallagher’s book The End of the Suburbs: Where the American Dream Is Moving (Portfolio Hardcover, 2013) has gotten a lot of attention lately. It’s one of those ideas that’s appeared in book form at the perfect time. We’re climbing out of the recession and returning to our urban roots. At the same time, Millennials are coming into their own as a demographic, and choosing city centers as their place in the world. Finally, Baby Boomers are rejecting the isolation of privacy and embracing community life.
Sounds nice, right? Well, just like any theory that makes a big splash on cable news, that’s not the whole story.
“The media has focused on it so much, the death of the suburbs,” Bob Bach, head of research for commercial real estate service firm Newmark Grubb Knight Frank, said at the commercial economic forum at the REALTOR® Party Convention & Expo in Washington last week. “But the suburbs are far from dead.”
Bach said that the move back to the city is definitely happening, and that it didn’t just come out of nowhere.
“This is the culmination of 40 years of city planners’ work,” he said. But popular culture has been on board with the idea “ever since the TV show Friends showed… it was cooler to live in Manhattan than in Brady Bunch territory.”
Bach noted that while multifamily building has been concentrated in cities, not all commercial expansion is taking place there. In fact, he said that some 80 percent of the office absorption that has occurred in the recovery has happened in the suburbs. That means that, even if they’re living in the city, many Millennials are commuting to jobs in the suburbs.
However, the sprawling suburban office parks of yore are not going to do much to beckon Millennials to leave the city every weekday. John Sikaitis, senior vice president and director of office and local markets research with investment firm JLL, said at last week’s forum that the “if you build it, they will come” attitude about office space no longer holds true.
“The suburbs are not dead, but they do need to be heavily reinvented,” Sikaitis said. He identified a number of trends that will help office space stand out, but one of the main things they must have is a clearly-defined “sense of place.” The areas that will thrive in the coming years don’t necessarily need transit, but they should have urban characteristics, such as higher levels of walkability, and a “town center” layout. Sikaitis said that research shows that suburbs that have such characteristics generally show “vacancy rates that are half what they are in regular suburbs,” with around a 40 percent rent premium.
That can translate to a good deal for savvy investors. NAR Chief Economist Lawrence Yun pointed out that when there’s an undue prejudice against against a certain product, there’s often a profit to be made.
“When a myth like this exists… there’s a money-making opportunity,” Yun said. “All the data is supporting this idea…that suburbs can survive.”
Bach agreed, noting that as office space and suburbs become more sophisticated, some Millennials will eventually move away from the city. “There are plenty of opportunities in the suburbs.”