Top 12 Cities Where Commercial Real Estate Is Primed for Growth
It will come as no surprise for business owners, workers, and commercial real estate investors alike that vacancy rates skyrocketed during the COVID-19 pandemic. In the U.S., national average office vacancy rates peaked at 17.2% in the second quarter of 2021. More and more employers decided to embrace permanent remote work, while retail vacancy rates hit 20%. It was a similar story in Canada, which saw even stricter lockdown measures implemented.
Yet, top investors understand that the real estate market is cyclical — it sees frequent ups and downs, and the best time to buy is often somewhere in between. The key, as you know, is to get in on the upswing.
As you think about where to invest next, keep in mind that in many cities, office space has been slower to rebound than retail and industrial. Large cities, which took a bigger hit during the pandemic, also have more ground to regain. We’ve looked at a variety of data – including 2020–2021 population growth and recent vacancy rates, rental rates, and net absorption rates – to help predict where investors may get the best return across office, retail, and industrial CRE. Here are the top 12 U.S. and Canadian cities where CRE is growing in big ways.
Albuquerque, NM
Population growth rate: 1.53%
Office vacancy rate: 11.82%
Office net absorption: 75,596 square feet
Retail vacancy rate: 9.20%
Retail net absorption: 206,154 square feet
Albuquerque may be known for its distinctive Southwest architecture and desert landscapes, but these days its reputation as a commercial center is thriving. While the city has seen some turnover with its larger employers and retailers, its vacant properties don’t stay that way for long, resulting in a positive net absorption rate for both office and retail.
Raven Defense, a company with over $5 million in revenue, recently signed a 10-year lease for a 25,000-square-foot space, while Lowe’s, PF Chang’s, and more companies are also making moves. There’s room for small businesses, too — in fact, most of Albuquerque’s sales and leases are spaces under 5,000 square feet, and there’s been a 25% increase in new small businesses. In this city, all signs point to growth.
Austin, TX
Population growth rate: 3.12%
Office vacancy rate: 13.80%
Office net absorption: -1,389,872 square feet
Retail vacancy rate: 4.20%
Retail net absorption: 807,190 square feet
Austin is no stranger to growth. It’s topped lists of “fastest-growing cities” for years, and its population boom remains one of the highest on our list. While its office vacancy rate did take a hit (thanks to its largely knowledge-based economy, which allowed employees to work from home), there are promising signs for major CRE oportunities. For example, Austin leads the nation in new office development – its pipeline accounts for an impressive 7% of the overall national office development pipeline.
Austin’s retail rebound more than makes up for its office net absorption rate. Its leisure and hospitality industry has seen the greatest jobs growth, festivals are back, and celebrators and shoppers once again roam South Congress. And, get this – for investors, asking rent for retail space is up 4.8%, and there’s still inventory to be had…at least for now.
Salt Lake City, UT
Population growth rate: 0.94%
Office vacancy rate: 9.30%
Office net absorption: 120,307 square feet
Retail vacancy rate: 4.20%
Retail net absorption: 292,463 square feet
Thanks to low filing fees and relaxed regulations, Utah and business have always gone together like bread and butter. It had a strong and diverse economy before the pandemic, and while some of its workforce did temporarily work remotely, only 16% of employed residents currently work entirely from home. On top this, the state ended 2021with a $2 billion budget surplus and sweeping tax cuts.
As the hub of the state, Salt Lake City benefits from all of this and more. It’s one of the most educated cities in the U.S., with an affordable cost of living and an entrepreneurial spirit. Plus, its office and retail net absorption rates are well in the black, an excellent sign of a thriving market.
Jacksonville, FL
Population growth rate: 1.33%
Office vacancy rate: 10.00%
Office net absorption: -274,299 square feet
Retail vacancy rate: 4.40%
Retail net absorption: 1,169,564 square feet
If you look at every city on our list, you might not guess that Jacksonville, Florida, is undergoing one of the greatest retail revolutions. Like Utah, Florida is extremely business friendly, with no state income tax and low corporate taxes. Jacksonville is affordable, beautiful, and on the rise, with the highest retail net absorption rate of any city on our list by a long shot.
The National Association of Realtors ranks the Jacksonville CRE market stronger than the national average, including stronger markets for office, industrial, retail, and hotel properties. Large tenants like Adecco Staffing and billion-dollar accounting firm BDO are moving in. Demand for medical and industrial space is rising, and there’s plenty of land still to be developed. For Jacksonville, the future of CRE is as bright as its white-sand beaches.
Raleigh and Durham, NC
Population growth rate: 3.74%
Office vacancy rate: 7.80%
Office net absorption: 621,300 square feet
Retail vacancy rate: 3.10%
Retail net absorption: 162,063 square feet
New residents of Raleigh and Durham might be coming for the Southern charm, the incredible history, or the beautiful oak trees. Still, we’d bet that the Raleigh-Durham area’s skyrocketing population growth is overwhelmingly due to one thing: jobs. This region has the highest office net absorption rate on our list, which is no small feat when remote work is the new trend. The unemployment rate is below the national average, and thanks to the Raleigh-Durham area’s status as a hub of tech and life sciences, office rents average $27.50 per square foot.
All those workers need places to shop, which could be why Raleigh has a strong retail CRE market, too. Repurposing is the name of the game, with plans to turn shopping centers like Triangle Town Center and South Hills Mall into mixed-use and multi-tenant properties. Raleigh-Durham is a hot market no matter what type of CRE investment you’re interested in pursuing.
Chattanooga, TN
Population growth rate: 0.48%
Office vacancy rate: 4.30%
Office net absorption: 142,558 square feet
Retail vacancy rate: 3.60%
Retail net absorption: 143,798 square feet
Nashville and Atlanta may score lots of publicity, but Chattanooga quietly builds its CRE empire between them. As prices rise in other cities, Chatanooga’s central location, affordability, and lower-than-average unemployment rate have set off a scramble for both office and retail CRE.
As in Raleigh, adaptive reuse is the most efficient path forward for Chattanooga to keep up with this rising demand. The city has recently adapted a former Sears in the Hamilton Place Mall and a WestRock packaging plant. There’s plans for more development like this – such as turning the historic Chattanooga Bank Building into a hotel. If you like to think outside the box – or, in this case, building – for your CRE projects, Chattanooga could be for you.
Richmond, VA
Population growth rate: 1.09%
Office vacancy rate: 7.70%
Office net absorption: -756,557 square feet
Retail vacancy rate: 5.10%
Retail net absorption: 348,401 square feet
There must be something in the water in the South. Like our other Southern cities, Richmond has a low unemployment rate, affordable cost of living, and healthy job growth, particularly in education, health services, and leisure and hospitality. While office net absorption is still in the red, Class A buildings are driving a resurgence as businesses seek high-end amenities to entice employees back to the office.
Retail in Richmond is strong as well, with the recent sale of the 100,000-square-feet retail center The Row at GreenGate, as well as the nearly 83,000-square-foot Parc Place shopping center. You can’t forget about industrial space, either. It’s one of the strongest CRE sectors, as proven by the $7.8 million acquisition of 4300 Carolina Avenue, a former food facility that will be repurposed. For the diversified investor, Richmond has a range of enticing CRE.
Dallas, TX
Population growth rate: 1.52%
Office vacancy rate: 20.68%
Office net absorption: -4,481,877 square feet
Retail vacancy rate: 7.00%
Retail net absorption: -84,361 square feet
Dallas has always been a bit of a Cinderella story. From its sports teams to its boom-and-bust ties to the oil industry, The Big D is no stranger to reinventing itself. In the past several decades, it’s gone from housing less than five Fortune 500 headquarters to nearly 25. With time, it has evolved into a leader in CRE for aerospace, defense, and technology. Its population is skyrocketing, and its job growth has fully rebounded.
Dallas also has some of the highest asking rates for office and retail rent on our list, with the retail asking rent up 1.6% in a year, and 5.7 million square feet of office space currently under construction. While it may take a few more quarters for Dallas’s CRE recovery to be complete, now might be the time for investors to take action.
Cedar Rapids, IA
Population growth rate: 0.35%
Office vacancy rate: 3.90%
Office net absorption: -3,899 square feet
Retail vacancy rate: 2.00%
Retail net absorption: 155,211 square feet
Cedar Rapids may be the most resilient city on this list. Yes, the pandemic shook up its CRE in a big way, especially in the central business district, where the city is turning some buildings into apartments. Several big-box stores stood empty, but they are being turned into family entertainment facilities, storage spaces, and more. Cedar Rapids is innovative, rent for both office and retail are stable, and vacancies are low.
The biggest benefit of Cedar Rapids? Space. Logistics, warehousing, and distribution are red-hot in the Rapids, with projects like a 479,000-square-foot FedEx facility, 53,800-square-foot UPS facility and 259,000-square-foot freight facility at play. Mixed use isn’t far behind, as the current eight-acre project at the former Zimmerman Ford buildings and 35-acre project in southwest Cedar Rapids demonstrate. Investors with big dreams – not just metaphorically, but physically large, too – just might find their home in Cedar Rapids.
Coeur d’Alene, ID
Population growth rate: 2.57%
Office vacancy rate: 2.30%
Office net absorption: 67,594 square feet
Retail vacancy rate: 1.50%
Retail net absorption: 115,235 square feet
It’s no secret that the pandemic has people reexamining their priorities – and remote work often allows individuals and families to move away from expensive cities. So, where are remote employees moving? For some, the answer is Idaho. The state was one of the first to reach pre-pandemic employment levels, and its natural beauty and high quality of life are attractive to many remote workers.
Right now, it’s all about Coeur d’Alene. While the city had a population of about 55,000 in April of 2020, it’s growing quickly. The office and retail vacancy rates are the lowest on our list, and the asking retail rents are up 2.4%. If smaller office buildings, flexible workspaces, lunch spots, coffee shops, and grocery stores are in your investment wheelhouse, Coeur d’Alene is the place to be.
Victoria, BC
Population growth rate: 1.04%
Office vacancy rate: 6.20%
Office net absorption: 62,864 square feet
Retail vacancy rate: 5.80%
Retail net absorption: 281,655 square feet
At first glance, it might seem strange that a city on an island (that is only accessible by ferry) is a top pick for rebounding CRE. Yet, like Coeur d’Alene, Victoria is benefiting big-time from the remote work revolution. Once known as a retiree paradise, the city and island are seeing more young workers in search of a quality, outdoorsy lifestyle.
In addition, the provincial government makes up a large and stable proportion of tenants. Office rental rates are up 3.4% year over year (the highest increase on our list), and the city has one of the lowest unemployment rates in Canada and the highest job-recovery rate. While retail has struggled, locals have rallied to help support small businesses – so, there’s a clear sense of community that any CRE investor can appreciate.
Winnipeg, MB
Population growth rate: 0.98%
Office vacancy rate: 12.90%
Office net absorption: 75,343 square feet
Industrial vacancy rate: 3.20%
Industrial net absorption: 752,000 square feet
Did you notice we shifted our stats above to spotlight industrial? We couldn’t sleep on Winnipeg’s booming industrial CRE market, and neither should you. The city’s industrial net absorption rate is at its highest level in five years, vacancy is the lowest it has been since 2018, and rental rates have increased by nearly a dollar per square foot in the last year.
The highest demand is for modernized industrial space, such as the 80,190 square feet recently developed in Centreport Canada, one of the largest inland ports in North America. This demand means that landlords can negotiate longer terms and higher rental rates in many cases. The bottom line? Competition in Winnipeg is tough, but the rewards are worth it.
Conclusion
In physics, what goes up must come down, but in real estate, what goes down must come up. Smart investors can use the cycle to their advantage. As Warren Buffett said, “Look at market fluctuations as your friend rather than your enemy.” Opportunities don’t disappear – they just take a different form. The 12 cities above prove this theory in a dynamic way.