U.S. submarkets with access to public transportation are achieving rents that are almost 80 percent higher than the broader office market, driven by changing commuting patterns and an intensifying battle by companies to recruit and retain employees.
This space, which is just under a third of the national office inventory (excluding New York), will be in high demand from tenants and continue to appreciate over the long term, based on JLL’s latest transit-served market analysis.
“The era of the long car commute from the suburbs to the city is over, as is the concept of young city dwellers driving to jobs in the suburbs. Workers are demanding offices served by public transportation and our research shows that infrastructure investment is critical to establishing sustainable office markets,” says Scott Homa, JLL’s Director of U.S. Office Research.
Average asking rents for Class A space near public transportation exceed $51 per square foot nationally, based on the analysis. The vacancy rate is also lower in these transit-accessible submarkets at 12.2 percent, 230 basis points below the national average, according to the report.
In Fairfield County, Connecticut, the Greenwich Central Business District (CBD) achieves asking rents of $88.40 per square foot. That’s nearly 2.5 times more expensive than the broader office market.
Rents in both Downtown Walnut Creek and Downtown Pleasant Hill in the East Bay (San Francisco), both of which have BART (Bay Area Rapid Transit) stations, now stand at $44.00 per square foot. This rate compares with the average East Bay suburban rents at $32.51 per square foot. Investors are drawn to the 35 percent higher office rents near East Bay BART stations.
“BART access draws in talent from more urban areas of the Bay Area and facilitates reverse commutes for larger users who may be priced out of the Oakland CBD or San Francisco,” says the report.
Due to the strong fundamentals and sustained demand, nearly half of all office development in the U.S. is taking place in submarkets with public transportation, spearheaded by New York City’s Hudson Yards, One Vanderbilt and Salesforce Tower, which all have new or expanded transit facilities either onsite or nearby, says the report.
In Los Angeles, developers across property types – multifamily, office and hotel – are embracing the region’s growing public transportation system. Hollywood, Downtown, the Arts District, Santa Monica and Culver City are all registering increases in transit-oriented development. Other traditionally car-oriented cities, such as Atlanta, Dallas and Phoenix, are also seeing similar trends on a smaller scale.
This shift in market dynamics coincides with the push for more public transportation infrastructure by voters and elected officials across the country.
In 2013, the American Society of Civil Engineers (ASCE) released its quadrennial “Infrastructure Report Card,” giving the U.S. a D+ rating. The score means that infrastructure is poor and mostly below standard, with many elements approaching the end of their service life. The report estimated that Congress and the states must invest an additional $206 billion each year to prevent adverse economic consequences to families, businesses, and the economy.
President Donald Trump, during his election, promised to spend $1 trillion updating and improving aging U.S. infrastructure.
Voters have shown support for using local taxes to help fund expansion, as evidenced by the success of Measure M in Los Angeles, which allows the city to regulate the marijuana industry; and the T-SPLOST (a local option sales tax for transportation) and MARTA (Metropolitan Atlanta Rapid Transit Authority) referenda in Atlanta. In the latter, Atlanta-area residents voted to pass two transportation funding tax increases late last year. The tax increases will provide funding for street projects and expansion of MARTA buses and rail lines.
Homa says investment in public transportation projects will be increasingly important as urbanization continues. For the office sector, expansion will open up new frontiers for clustering, development and relocation possibilities, improving access to talent and driving innovation.
In the future, increased density, limited road and parking spaces will drive the growth of transit-accessible regions. These trends will continue over the long term as many infrastructure projects currently under construction open to the public, and living patterns change accordingly, says the report.