- Obsolescence of office space is a natural process, underway since modern office buildings were introduced in the 19th century. However, this process has accelerated in the 21st century due to rapid changes in the way tenants use office space, in part brought about by technology and changes in the organizational structure of the office environment, and accelerated further by economic considerations coming out of the Great Recession.
- We find degrees of obsolescence – from buildings in the early stages that can be cured with prudent retro-fitting, to buildings completely obsolete and in need of repurposing.
- Based on a study of five representative suburban submarkets from coast to coast we conclude that 14% to 22% of the suburban inventory is in some stage of obsolescence. While one outlier submarket’s inventory was 8% obsolete, we believe this is not representative of the bulk of suburban markets in America.
- If 14% to 22% of the U.S. suburban inventory is obsolete, that suggests that between 600 million and 1 billion SF in the 50 largest U.S. metros is not competitive in today’s market, equivalent to approximately 7.5% of the entire U.S. office inventory.
- There are many factors that signify obsolescence. Some are curable while others are not. We have identified six quantifiable factors. We believe that curable factors include amenities, age (via renovation), and parking (although the last of these is not always curable). Incurable factors (or at least incurable without massive expense) include location, floor plate size, and building size.
- We find that key tenant preferences vary by market, and that is what has driven this analysis. However, location (relative to mass transit and highways) and access to building and neighborhood amenities appear to be a common theme among tenant preferences nationwide.
- Proactive owners, prospective investors, and tenants each can leverage obsolescence to their advantage.