Originally published in The Wall Street Journal by Robyn A. Friedman
It is well known that technology companies and other firms that hire loads of young workers have been expanding in cities, opting to locate in places where employees have ready access to restaurants, shopping and entertainment.
But a countertrend is taking place as well. A number of companies—especially mature firms or those with older workers—are leaving the city for the suburbs. Some are seeking lower rents, parking space or large blocks of office space that might be unavailable in urban areas.
Many of these firms are relocating to aging suburban office campuses that are being repurposed by developers into self-contained 24/7 communities.
Consider the Arvida Park of Commerce, a 700-acre office park in Boca Raton, Florida that originally opened in 1978. Last month, the park, which currently has 5.2 million square feet of office space and 554,000 square feet of commercial and retail space, changed its name to The Park at Broken Sound as part of a rebranding and repositioning plan.
That plan will bring additional office and commercial space to the project, with nearly 300,000 square feet already approved, as well as 1,050 multifamily units, thanks to a 2012 rezoning of the site that allows for residential use. Once complete, the park will provide an environment in which residents can walk or ride a shuttle to work, dinner and shopping.
With an office vacancy rate of 15.3 percent in the first quarter, compared with 19.9 percent in Boca Raton overall, the park was already thriving. Even so, its owners felt the need to modernize.
“With the addition of a residential component, Arvida Park of Commerce will morph into a dynamic work/live/play destination and employment hub,” said Jamie Danburg, a member of the Arvida Park of Commerce Association board. “No longer will it look like your dad’s office park of the 1970s.”
Developers are attracted to suburban office parks for the returns. According to data firm Real Capital Analytics, capitalization rates, or the ratio of operating income to asset value, for suburban office properties averaged 6.8 percent during the first quarter compared with 5.7 percent for offices in the central business district.
“The opportunity for higher returns is definitely greater when you’re starting with an asset that would cost a billion dollars to build today and you’re able to reposition it,” said Ralph Zucker, president of Somerset Development LLC, a Holmdel, N.J.-based firm that purchased the 2 million-square-foot former Bell Labs facility in Holmdel for $27 million in August 2013.
Read the full article in The Wall Street Journal