Real Estate

Where to find the next office hot spots

Downtown skyline of Nashville, Tennessee
Raymond Boyd | Getty Images

Office space in New York, San Francisco and Washington, D.C., has been strong, but it's also gotten pricey to buy into. So where can employers and investors go for the next opportunity?

Real estate investment management firm JLL says look to NERDS for the answer: Nashville, East Bay, Raleigh-Durham, Denver and Salt Lake City have expanding metros and lower prices than the U.S. average.

Companies looking for office space can get rental rates that are on average 35 percent lower than the average U.S. rate.

For investors in office REITs, these cities offer a higher return with so-called cap rates, or income returns, between 5.5 and 7.5 percent. REITs such as Brandywine, Mack-Cali, First Potomac and Parkway Properties could look to these cities for growth. "These markets are going to become attractive as these other markets continue to get hot, driven by millennials which are going for quality of life," said Stephen Collins, who leads the America Capital Markets business of JLL.


The country music capital isn't just about the music industry, but rather is anchored by jobs in education and health care, which account for 15.5 percent of jobs. Vanderbilt University is attracting young people who are willing to stay, helping revive the downtown area. On Wednesday, Bridgestone America broke ground on a 30-story, $200 million headquarters in downtown, which will bring in 1,700 workers.

Office employment: 208,100 or 25 percent of total employment

Vacancy rate: 8.6 percent

Salt Lake City

Over the past 10 years, Goldman Sachs has been building its employment base in the city and currently employs nearly 2,000 people. Utah and Salt Lake City have offered numerous tax breaks and benefits to entice more businesses to come.

Office employment: 185,000 or 27 percent of total employment

Vacancy rate: 11.7 percent

While these tertiary markets hold promise, having added 41,000 new jobs in the last year, they are not without risk. "If something happens to the economy, these markets will be the first to suffer, but right now you see these young folks are looking at quality of life, and they want to live in a market where they can feel good about themselves," said JLL's Collins.

East Bay

Location is what the East Bay area of California has going for it, as an affordable option near both San Francisco and Silicon Valley, with rental rates 54 percent lower than those areas. Investors are already betting employers will want in. On Dec. 23, KBS Real Estate Investment Trust bought 815,018 square feet of office space in East Bay, according to the company's 8-K filing.

Office employment: 248,200 or 24 percent of total employment

Vacancy rate: 15.8 percent


Population growth, 7 percent since 2010, has outpaced the hot markets of Houston and Dallas. Professional and business service jobs have grown 30 percent since 2011. The area has double the national average of college-educated people, with Duke University, the University of North Carolina at Chapel Hill and North Carolina State University anchoring the region. JLL expects rent growth of 6 percent this year.

Office employment: 281,000 or 26 percent of total employment

Vacancy rate: 12.8 percent


The Mile High City has quality of life going for it. Newly renovated Union Station has become a central hub for companies and employees. JLL cites the instability of the energy industry as a potential threat, but the city has a diverse industry composition with growing tech, biotech and professional and business services sectors that should cushion an energy drop.

Office employment: 348,100 or 29 percent of total employment

Vacancy rate: 14.1 percent