www. REBusinessOnline.com November 2019 Volume 17, Issue 3 WESTERN USS eee eects THE HOT NEW MARKETS FOR OFFICE REIT INVESTORS A new crop of Western cities are attracting the eye of office REITs. By Brent Caroll irc, them have boon thre rts Ames it hat have Hes Aer ee Se ence free mon ofce RET fe urhew fncaing New York Gry cated ther nveinenia Tha mar Ean Fc, Besow Lon Angeles Gs fer leant ay coe toa Wachngon DG. and Ching {sie workone adctogecanr What may ot be obo that 2 (criments Panay weketan be indanesal ht ocurng in the inheronly arctve to ofc REIT pinay matt it. Ths eegory dovts Out conmanding premeein. Dspindg to enbrace naa Bat SheUS recite mare in terns of were tainly thought oft sec both population and olune of cl unday or etary int Western US, tian! "anachon: Dalat note tote martes Sal Lake Gy ‘see OFFICE REITS, page 30 Ss 21story ofee toner at 222 Main n Sa Lake City features vews of tre Wasetch Mourn Rarge and downtown Salt Lae CyTHE HOT NEW MARKETS FOR OFFICE REIT INVESTORS Portland, Ore, and Denver. Similar 10 the traditional primary markets these “new” primary markets are densely populated, boast strong job growth, Contain 2 wallestablished transporta- ton infrastructure, and are highly at- tractive to CRE investors both demes- tically end internationally — making. ‘them the newest batch of hot markets for office REIT. Let's take a look at the causes ofthis shift Technology “Technology has played a mafor role in elevating secondary markets to the primary market lst. ‘According to the New York Times, technology like cloud computing and ‘video conferencing has enabled many jabs tobe done remotely outside of the traditional primary merkets. k's no longer necessary forall work: cers in a company to be based in the ‘same city or even in the same market they can work from just about any- where. Advancing technology has not only disrupted the way people work, but ako resulted in growth in more ‘markets. The rise of these goographi- cal areas has placed them on the radar ‘of many office REITs as they look to ‘expand their portfolies, Changing Compar Perspectives on Office Space ‘This migration and expansion of office space is largely driven by two factors. Fist, many tech compari and tech talent ane being priced out Of coastal markets like Seattle and are in search of strong value altesna- tives. Portland has all the ingredients of becoming a tech epicenter catering to the young Millennial workforce. It is extremely walkable, equipped with quality mass transit, and has access to excellent nightlife, great restau rants, high-quality retail and. dense turban housing. This makes Portland attractive to tech firms as it delivers the quintessential live-work-play en- vironment that tenants and their em- ployees demand, Second, the office isn't just for work anymore. Corporate America is us ing its ofice space to draw in the best workers Companies are opting, for space that is well-amenitized, located near public transportation, walking distance to dining and shopping and offers modem conveniences to their employees. As companies compete for top tal- ent using these well appointed spac office REITs are taking notice and adding them to their poriolics Migration of Millennials and ‘Young Adults Many Millennials and young adults are migrating to former secondary markets because housing is scarce and the cost of living is so high in the traditional primary markets. Housing tends fo be moze atfordable and plen- tifal in the new primary markets. As a result, numerous companies, which are increasingly looking to hire top talent, have been establishing offices ‘in markets where this talent is located. As an extra im ‘centive to migrate to former second- ary markets, a huge ‘swath of Millenni- als — who make up 4 large percentage fof the tech. work ‘newer primary mar kets are comparable to, if not higher than, tech salaries in traditional primary markets. What this Means for Office REITs While there re new cities on the primary markets list, that dooswt mean the traditional primary markets are any less viable. KBS owns a nium= ber of thriving office assets in these well-established markets, inchading, 201 Spear Street in San Francisco and The Almaden in San Jose; Clif. ‘Many investors have turned to the “newer” prime markets in search of higher yield on theirinvestments, This ie because properties in these markets can usually Be acquired at a lower price than they could in the primary markets and, after capital improve- ments, offer potentially higher KOs. ‘That said, KBS also owns numerous fourishing properties in markets pro= viously considered secondary, includ ing 222 Main in Salt Lake City; Com- monvrealth and the Meier & Frank building in Portland; and Granite ‘ower in Denver Similar to the prop- certies wre own in the traditional pri- mary markets, these assets also align ‘with our strategy of investing in best- in-class fice real estate in the epicen- ter of growth markets, which affords investors in our REITs the chance #0 diversify their portfolios in new and promising regione, In the end, the “new” primary mar- kets con open new channels of oppor tunity for office REITS to achieve their overall goals. Choice is beneficial to the industry as a whole, and the of fice REIT sector is taking advantage of 2 wealth of new choices for its Funds ‘and investors, Bre Carol ofS