Best in Class B
Be it multifamily residential or commercial, Class B real estate is booming and for some very good and interrelated reasons. Sure, the biggest, poshest high rises get all the attention. I mean projects like Manhattan’s One57 grab headlines with nicknames like “The Billionaire’s Building.” No “B” project ever could ever match that. At the end of the day however, research seems to indicate that B is what tenants want across the US.
Let’s start with multifamily residential Class B real estate: In a report from CBRE, Houston’s Class A multifamily occupancy has fallen nearly 30% from its 2013 high. In fact, class A vacancy sits at a paltry 87%. Conversely, Class B apartment occupancy is above 95%. Houston is the norm here, not the rule.
Now let’s cruise over to the Greater Boston area into the status of commercial Class B real estate. Here, too, you see Class B taking names. In a separate report, also by CBRE, you see the “most (office) deals occurred in low-rise or value options. Long-vacant low-rise blocks were leased while high-rise options still remain available.”
A similar phenomenon is paralleled across the US, from Atlanta to Arizona, Syracuse to Seattle. This begs the question: why? What you see at the heart of the Class B real estate trend are millennials. Where the yuppies of yore expressed themselves with conspicuous consumption, yuccies are all about the experience. As Mashable’s David Infante puts it, Yuccies aka Young Urban Creatives, “are determined to define themselves not by wealth (or the rejection of it), but by the relationship between wealth and their own creativity.” This sort of creativity lies dormant in the suburbs and it’s too expensive to find traction in class A.
So whether this millenn-intelligensia are getting a check (as well as a non-trivial allotment of stock options) from a tech startup, launching their own brand of Organic Hydration Drink, or simply making lattes while they figure it out, class B real estate is the best fit hands down. Class B office space is good enough for the tech company to be client and new-hire facing, and Class B multifamily is good enough for the individual to be significant-other facing. Class B can have a bit of needed flavor to it too. Even if that flavor is in a ironic sameness kind of way sometimes. Class B gives yuccies and their generational adjacents extra runway to raise the next round of funding or extra savings to take that month long bicycle trip to (enter the name of a dope, yet not-played-out destination here).
Look, yuccies would love to eventually be the coolest tenant in their Class A building someday. But for the foreseeable future; they’re just gonna keep “being me” in Class B.
About the Author: Charlie Muir is a USCD alum and resident Growth Hacker at commercial real estate tech start up Digsy. He was formerly a growth specialist at LawnLove; a Summer 2014 Y Combinator company.
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