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A Look at where Tenants are Migrating in Several Key Markets Across the Country

The Washington, D.C. market has seen over 2 million square feet of tenant migration out of the core CBD and East End submarkets over the past several years.  Most of the migration is driven by the Federal Government who has taken advantage of the aggressive terms offered by Landlords with lower land basis in outer submarkets, such as Southwest and NoMa, to consolidate large requirements to new construction.  Construction cost increases have more recently slowed this trend, bringing the legacy stock of buildings back into competition for Federal requirements.

Source: Cushman & Wakefield

In Boston, life science / lab demand is spilling over from Cambridge, which is largely full, to the CBD/Seaport. The Seaport District, nearly non-existent as a business market in 2000 and very small in 2010, is the submarket of choice today for nearly every technology, innovation, and biotech tenant south of the Charles River.  For instance, Eli Lilly and Co. has signed a 334,000square-foot, full-building lease at Alexandria Real Estate Equities life science project in Boston’s Seaport Innovation District. 

In Atlanta, we are seeing many tenants (especially tech firms) being drawn to the “cooler,” newer areas of the city where the office product is more creative office and less traditional trophy tower.  Also in Charlotte, Gen Z-ers and Millennials are flocking to the South End and companies seeking this talent have similarly migrated to place themselves closer to their target talent pool.

In the Dallas/Fort Worth market, aside from Uptown where financial firms and more traditional companies prefer to locate, there is an embedded preference towards the suburban submarkets, especially Legacy/Frisco, Las Colinas, and Richardson/Plano for larger requirements due to the availability of a more significant amount of newer product.

In Miami, many tenants are leaving the Brickell Ave area of the CBD and choosing the downtown due to record high asking rates in Brickell.   Wynwood, a small subset of the Biscayne suburban submarket, is seeing a lot of attention from tech and creative tenants. This submarket is relatively small at 2.5 MSF but has an oversized reputation due to Art Basel and the dynamic art scene.

And finally in Los Angeles, the CBD, historically dominated by the FIRE (finance, insurance, and real estate) industries, has really struggled the past two years, while the CBD adjacent submarkets have captured most of the demand. The Arts District has seen tech & media in-migration while parts of the Tri-Cities (Burbank), LA West (Santa Monica, Culver City), and LA South (Beach Cities/El Segundo) have seen increased activity from large TAMI (technology, advertising, media, and information) tenants looking for projects that are low-rise with creative uses.  Adidas and Forever21 have signed deals in the Fashion District in a newly renovated project from Brookfield (almost 1.3 million square feet across 4 buildings).

In El Segundo, activity has come from biotech and aerospace related firms, in addition to the new development activity brought by the LA Chargers headquarters and training facility.  The LA West (Century City) submarket is very tight with large deals turning the submarket into a smaller secondary CBD of LA. The flight to new high-end creative product across the LA market has been transformative for the market as a whole and has caused the traditional CBD to lag where this type of office product does not exist.

 

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.

 

Thomas Cicotello

Executive Vice President, Portfolio Management
Boyd Watterson Asset Management, LLC