Since 2008, downtown office vacancies nationwide have increased to 12.4% while suburban office vacancies are at a huge 16.6%.

What’s going on? One theory is that the post-WWII migration toward the suburbs is reversing itself. Ask any college graduate under 30 where they want to live. Most will respond they want to live in a more urban environment – and many want a location that won’t require them to own a car! 

From a landlord’s perspective, this means three things:

Rental properties near downtown areas will command higher rents, increasing their values. On the flipside, suburban properties will probably become less valuable over the coming decade as it becomes ‘cool’ to live downtown again’.  The further a property is from a downtown area, the more pronounced this will be. Finally, it means that one of the most important factors in purchasing new rental units is going to be their convenience to a downtown area.

A commercial property with easy access to a local traffic corridor is going to be easier to lease.  Now consider that historically, people follow businesses, but it takes them several years (sometimes a decade or slightly longer) to catch up. During that time, however, people are still working and often playing downtown, but living in the suburbs.

If you’re a property manager, in the short-term you should invest in properties near the corridors and promote them as “easy access to downtown. Longer-term,  invest in territory in a downtown core, and plan to spend as much as you can upgrading. Downtown vacancies are most likely going to get snapped up, and as they fill up, rates (and property values) are going to start rising. It may take several years to get there, but if you’re determined to make a long-term living out of investing in real estate, it’s a solid move.

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