• Market Crumbs

Will Suburbs Become A Corporate Hot Spot?

Image via Tom Rumble on Unsplash

Last week we wrote about the handful of technology giants that are warming to remote work. Facebook, Twitter and Shopify are among the companies that are betting the future of work will be done remotely.

We also said that despite the moves to allow employees to work remotely, there will always be companies that still require their employees to work in offices.

For those companies that choose to have an office—whether for employees to work at full time or just to have a place for employees to go as they wish, it's starting to look increasingly likely they'll be away from major cities.

After years of moving into trophy buildings in the hottest cities across America, speculation is beginning to grow that companies may start heading to the suburbs.

"Is office space going the way of retail in five years? That’s what investors are really trying to understand," City Office REIT CEO James Farrar said. "I think you will see more and more tenants leave the city. There will probably be more satellite offices, where people don’t have to be downtown. There will be more part-time working from home."

While these trends are certainly not new, it looks likely they'll be accelerated as a result of the coronavirus.

For example, New York City has already seen an exodus of financial services jobs well before the coronavirus struck. At the end of 2018, New York City had 4% fewer banking, insurance, securities and real estate employees than in 2008.

Large cities, despite the belief that they're a hot spot for millennials, have also seen an exodus in recent years. U.S. cities where the population exceeds 500,000 have now seen their millennial population decline for four-consecutive years, according to the latest Census data for 2018. Suburban towns now represent 14 of the 15 fastest-growing U.S. cities where the population exceeds 50,000.

According to CBRE, nine of the ten largest office markets in the U.S. saw vacancy rates jump in the first quarter. Manhattan office leasing volume tanked 47% in the first quarter compared to its 10-year quarterly average, according to JLL.

"You’re definitely seeing more tenants coming out of the city looking for suburban space," chairman of Americas research at CBRE Spencer Levy said. "But let’s be clear about what they’re looking for. Smaller space ... and shorter-term space."

Earlier this week, online retailer and styling service Stitch Fix gave a glimpse of what may become more prevalent in the months and years to come. Stitch Fix announced it will lay off 1,400 stylists in California, or about 18% of its workforce, while hiring 2,000 stylists in cheaper areas such as Dallas, Minneapolis, and Austin. The company said those employees who are affected will be offered the option of relocating.

With real estate being one of the largest expenses for corporations, reducing their footprints in major cities in favor of suburbs or remote work appears to be all but inevitable at this point.

Leftover Crumbs

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  • Bank of America providing assistance. Bank of America has pledged $1 billion in assistance over four years for communities to recover from the economic and racial inequality that has resulted from COVID-19. The program will assist communities through healthcare, jobs and retraining, support for small business and housing. Bank of America said the program will focus on "assisting people and communities of color that have experienced a greater impact from the health crisis."

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  • TikTok accused of censoring. TikTok is catching heat for reportedly censoring content related to the hashtags #BlackLivesMatter and #GeorgeFloyd. "We acknowledge and apologize to our Black creators and community who have felt unsafe, unsupported, or suppressed," TikTok said. "A technical glitch made it temporarily appear as if posts uploaded using #BlackLivesMatter and #GeorgeFloyd would receive 0 views."