These Midsize Cities Are Beating the National Average for Office Rent Growth
Commercial office investors tend to favor big cities. Those cities often are home to premier properties that have shown significant growth in office rents.
Over the past year, office rents have grown at an average of about 2.1% across the country. Many big cities have seen rent growth far above that average.
But office rents in a handful of midsize cities have beaten the national average for many of the same reasons: a strong economy that has increased office demand and construction that hasn’t matched that appetite, leading to a decline in vacancies.
Based on data extracted from CoStar, here are the five midsize cities that have office rent growth that exceeds the national average.
5. Spokane, Washington: 2.4%
Spokane’s rent growth has been driven mostly by tenants filling up high-end office space, according to CoStar’s Spokane market report. New construction has been limited, which has helped drive up office rents. Most new office buildings have been built specifically for the companies filling space.
Government, notably Fairchild Air Force Base, is the city’s biggest employer. Education and healthcare come in second. Spokane is home to college basketball powerhouse Gonzaga University.
(Tie) 3. Melbourne, Florida: 2.7%
CoStar’s Melbourne market report notes that the recession didn’t hit the area that hard. Brevard County is home to the booming Space Coast with Kennedy Space Center and Cape Canaveral Air Force Station. New office construction has been anemic, and vacancy now sits at 7%, which is below the national average of 9.6%.
Commercial space travel ventures along with rocket-and-satellite production in the area have been key drivers. The result has been high-technology jobs leading growth. Amazon founder Jeff Bezos’ Blue Origin is building a rocket plant in the region, for example. There’s also a bevy of defense contractors in the area.
(Tie) 3. Des Moines, Iowa: 2.7%
The state capital’s economy has been on a steady growth pace fueled by insurance and financial companies moving or expanding in Des Moines. Last year, Forbes ranked the city No. 7 on its list “The Best Places for Business and Careers.”
Office rents grew about 6% in from 2015 through 2016 but then slowed considerably into 2018. Office rent started rising again in the middle of last year. CoStar’s Des Moines market report says there’s been minimal construction to meet the increasing demand for office space. Its 4.9% vacancy is nearly half of the national average.
2. Durham, North Carolina: 2.9%
Home to Duke University, the city makes up one point of North Carolina's Research Triangle that includes the University of North Carolina at Chapel Hill and North Carolina State University in neighboring Raleigh.
Medical and biotechnology are key drivers in office demand, which has outpaced construction, according to CoStar’s Durham market report. Of the five cities in this list, Durham has the most office space under construction with 828,000 square feet.
1. Colorado Springs, Colorado: 6.3%
The city’s rent growth exceeds even Austin, Texas, the top city for office rent growth which is now at about 6% annually. Construction has been rare. A developer is building a 100,000-square-foot building, according to CoStar’s Colorado Springs market report, the first in more than a decade. The city ranks 12th on the Forbes' "The Best Places for Business and Careers."
Government is the biggest employer in the area, which hosts three U.S. Air Force bases and a U.S. Army base. One of the bases, Peterson Air Force Base, houses the North American Aerospace Defense Command, or NORAD. Colorado Springs also is home to the U.S. Olympic Training Center and the headquarters for the U.S. Olympic Committee.
