Developers see the suburbs as a new space to attract millennials and young professionals. Many city slickers are likely to move out of the city as they get older and start families. Toyota saw potential in the suburbs, and this summer it launched its new $10 billion headquarters in suburban Plano, TX. Today, we’re seeing a lot more “urbanized” spaces and growth in suburban areas, such as festivals (i.e. Musikfest in Bethlehem, PA) and unique converted buildings.
Are Suburbs the Next Urban City?
Investors & developers are constantly converting abandoned buildings to luxury apartments, gyms, offices, studios, etc. in the city. They have been revamping offices and other assets by adding urban elements to them. Picture food trucks, coffee lounges, and fire pits in a suburban setting! Former churches, prisons, and hospitals are also transforming into cooler spaces.
Ponemah Mills, CT houses an abandoned building that is finally getting a makeover. The project comes with a hefty cost of $98 million, but investors and the people of Ponemah Mills believe that it’s worth it. Broadway Stages, a New York-based production company, bought the former Arthur Kill Correctional Facility in Rossville, Staten Island for $7 million this summer. The former prison will transform into a TV production studio with office space. Broadway Stages plans to build five sound stages, and this renovation will create over 1,000 jobs! A+ for this project and potential growth.
The former Sears Crosstown warehouse has also gone through a huge transformation. The once vacant building is now a hub that boasts innovation and creativity. The 1.5 million square feet of space welcomes a “vertical urban village.” Imagine art exhibits, lectures, DIY music gigs, collaboration, and more. The old abandoned warehouse has blossomed into a space that embraces connection with the community and encourages creativity.
Challenges CRE Developers Face
Although the outlook for CRE remains moderately positive, converting buildings is not an easy task. The community may not be thrilled with the idea of luxury condos. They might want to see something else, such as a recreation center or affordable housing.
Transforming assets is a timely process, so developers can be hesitant at first. It can take a couple years to attain funding, as well as start the actual construction process. Not only is it timely, but it is also very expensive. Converting buildings also often increase rents, so developers usually have to pay higher deposits for development. Industrial rent growth is expected to increase by almost 4% in a couple of years. Vacancy rates grew nearly 5% in the third quarter this year, and it’s expected that construction numbers will rise. Issues with zoning, financing, and construction can repel potential developers and investors.
Challenges aside, the CRE market in the suburbs has seen some growth since the recession. Unfortunately, we don’t know how long this momentum will last. However, we’re anticipating what other projects are in store!