Rising High-Rise Rents Boost Demand for Lower Office Floors
March 20, 2015

This isn’t your father’s office market—technology firms, the most active prospective office tenants today, are altering the traditional idea of preferred office space.

Though they still lag the traditional professional services tenants for the overall share of space in most markets, technology firms have led the move back into Central Business Districts (CBDs), in part because their Millennial employees want easy access to downtown amenities and live/work/play environments. Brokers are also trying to keep up with the changes in space demands, including the growing preference for open spaces over traditional offices, efficiency over expansion, secondary markets over class-A buildings in primary cities and, in some markets, a new trend of preferring low-rise buildings or lower floors in high-rise buildings to higher-priced floors at the top.

The high rents at office towers are driven by the lack of new development and improved economy. Demand for office space has increased to pre-recession levels, according to a recent 2015 Outlook report from commercial real estate services firm Colliers International, with the national vacancy rate now at 13.1 percent, the lowest level since 2008. Andrea Cross, national research manager with Colliers, says demand from technology tenants continues to be robust, with increased leasing from both small start-ups, as well as tech titans like Amazon and Facebook...

Mark Stewart, branch manager of the New England office with commercial real estate services firm Savills Studley, says he’s not sure tech firms are so different from their FIRE counterparts. In his opinion, it’s really all about the money. If they had a choice, everyone would prefer a view, he notes.

“I think there are a few landlords of low rise space who are trying to market the open floor plans, etc. as being more desirable, but I think this is really a case of the explosive growth of building valuations and the resistance to the increased rents for high-rise tower space,” Stewart says. “This is about Yankee frugality.”

Rising High-Rise Rents Boost Demand for Lower Office Floors

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