Top 5 Markets for Office Construction Activity
- Jun 19, 2020
The coronavirus outbreak has put considerable pressure on the nation’s development activity; while states eased stay-at-home regulations, construction continued in even the most affected areas. Demand for office stock may seem low now, as businesses allowed their employees to work from home, but the high square footage underway before the pandemic paints a different picture.
Nationwide, developers were working on almost 150 million square feet of space at the end of April—2.4 percent of existing inventory—according to Yardi Matrix data. And while construction remained concentrated in the country’s largest office metros, it has also picked up pace in some smaller but fast-growing markets. The projects underway in the metros on this list represent as much as 10.9 percent of total office stock, nearly four times the U.S. average.
5. Allentown-Bethlehem, Pa.
Following the completion of some 1 million square feet of office space in 2014, activity in the metro’s construction sector started to pick up again. However, the impact of the COVID-19 outbreak has been significant. A statewide stay-at-home order classified nonemergency construction as nonessential, halting both residential and commercial projects until the beginning of May.
Developers were working on three office projects at the end of April, totaling more than 750,000 square feet and equal to 5.4 percent of the metro’s existing inventory. The 624,100-square-foot new Air Products headquarters was the largest development underway. The two-building project in West Allentown will be the submarket’s third-largest office property and the biggest one to come online in the past three decades. The project is scheduled for completion next year, but delivery will inevitably depend on how the coronavirus crisis continues. About two miles away, First Commonwealth Federal Credit Union is also working on a new two-building headquarters. The upcoming 96,400-square-foot property is slated for completion by the year’s end.
4. Charlotte, N.C.
Charlotte has been diversifying its economy in recent years, attracting fintech companies as well as a series of startups. As a result, the metro’s population has increased rapidly over the past decade—a 17.5 percent increase from the 2010 Census, based on July 2019 estimates. Charlotte’s employment market was particularly strong before the pandemic hit the U.S. Employers added more than 16,000 jobs in the 12 months ending in February, almost 40 percent of which were office-using. The financial activities sector added the highest number of jobs, 5,800, followed by construction with 3,100. As coronavirus cases showed up on construction sites around Charlotte, some projects were put on hold, although the state classified all construction—not just commercial projects—as essential during the stay-at-home order.
Some 3.7 million square feet of office space was underway at the end of April—5.6 percent of the metro’s stock. The 1 million-square-foot Charlotte Metro Tower was the largest project underway and one of North Carolina’s top office developments. Childress Klein started working on the 40-story project last July, with plans to include 25,000 square feet of retail space. Expected to come online in 2022, Charlotte Metro Tower will be Charlotte CBD’s fourth-largest office building to date and the biggest one to come online in a decade.
Brooklyn made headlines in pre-pandemic quarters, thanks to its rapidly growing economy. With New York hit the hardest by COVID-19, Brooklyn’s growth will undoubtedly face an uphill battle going forward. At the end of March, the state ordered the shutdown of all nonessential construction, including commercial development. A month later, the state outlined a phased plan to reopen New York, starting with construction.
Development activity continued at a fast pace before the coronavirus outbreak, with some 20 office projects underway, totaling 2.4 million square feet and representing 6.2 percent of Brooklyn’s rather limited inventory. JEMB Realty’s 1 Willoughby Square was the largest project underway. The upcoming 500,000-square-foot high-rise, designed to meet LEED Silver standards, will be located downtown in an Opportunity Zone. At full build-out, slated for year’s end, the 34-story property will be one of the submarket’s biggest office buildings.
Nashville’s office market saw a significant boost after Amazon decided to open its new operations hub there and hire as many as 5,000 people over the next seven years. Employment growth was robust last year, with some 18,000 jobs added—more than a third of which consisted of office-using jobs. But with leisure and hospitality accounting for a significant share of the employment pool, Nashville’s job market was heavily impacted by the coronavirus pandemic. And with construction classified as an essential activity during the statewide lockdown, both commercial and residential developers continued to work on their projects.
Office projects underway in Nashville totaled 3.8 million square feet at the end of April—7.3 percent of existing stock. Development activity is concentrated in the downtown area, where some 3 million square feet was under construction, including Southwest Value Partners’ 1 million-square-foot development at Nashville Yards. The overall project, which is expected to transform the submarket’s face, is set to include up to 3.5 million square feet of office space, more than 1,000 residential units, 400,000 square feet of retail and entertainment, as well as a 591-key Grand Hyatt hotel.
Austin remains one of the fastest-growing office markets in the country, thanks to increased interest from the tech sector. The metro’s population grew by almost 30 percent since the 2010 Census—based on July 2019 estimates—which contributed to the strengthening of the employment market. Thanks to the state’s business-friendly climate and Austin’s highly educated workforce, developers have been increasingly attracted to the metro, with more than 6 million square feet completed over the past three years.
With an increased demand for high-quality office supply came a surge in development activity in Austin. Projects under construction totaled 7.8 million square feet at the end of April, 10.9 percent of the metro’s existing stock. Apple’s headline-grabbing West Parmer Lane Campus is the largest office project underway in Austin. The 12-building mega-development is slated for completion in 2022. Other developments are also expected to change the metro’s skyline, including Lincoln Property Co.’s 6 X Guadalupe, expected to come online as early as 2022. The 1.1 million-square-foot development is designed for LEED Gold standards and will likely include some 600,000 square feet of office and 349 residential units, as well as 10,000 square feet of retail.