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suburban office

The Rise of Suburban Offices

Jun 01, 2020 by Brad Cartier

Office space will never look the same. As the majority of workers continue to do so from home, there will be far-reaching effects on this real estate sector for the foreseeable future. Some predict traditional offices will no longer be needed as companies and workers choose to work from home.

Other more nuanced discussions revolve around the location of offices. Capital-intensive downtown urban core offices are taking a major hit during the current economic cycle, which has many looking to more affordable markets: suburbs.

Bloomberg reported recently that Citigroup (NYSE: C) was on the lookout to relocate its existing Manhattan office to other New York suburbs. The report notes that Citigroup wants to open satellite offices in suburban Long Island, Westchester County, and New Jersey.

There is also reporting that California staples Palantir and Tesla may be considering -- for perhaps different reasons -- leaving their current headquarters for more affordable locations. In just the past few weeks, other companies have been looking to sublease all or most of their downtown offices.

Consider CareerBuilder in Chicago, seeking to sublease its 85,000-square-foot headquarters. Groupon (NASDAQ: GRPN) is also seeking to sublease its 150,000-square-foot Chicago headquarters, according to news reports. Occidental Petroleum (NYSE: OXY) in downtown Denver is seeking a similar move. And the list goes on.

Indeed, sentiment toward suburban living is on the rise according to The National Association of Realtors (NAR). Reportedly, a third of Americans are currently considering moving to a less densely populated location. And, with Twitter (NYSE: TWTR), Shopify (NYSE: SHOP), and Facebook (NASDAQ: FB) (to name a few) already announcing remote work plans, expect this sentiment to continue.

With social distancing, bigger spaces may be needed to accommodate the same size workforce as before. This is difficult and expensive in downtown core locations, whereas in suburban markets, spacing is not as big of an issue.

A flight to suburban, tertiary, and more rural real estate markets in the U.S. will have a dramatic influence on real estate investors. It's time to start taking a harder look at these monumental demographic shifts as you review your investment portfolio and strategy.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. bradcartier has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook, Shopify, and Twitter. The Motley Fool has a disclosure policy.