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CRE Finance World Summer 2015
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Considered individually, the factors may not establish future
demand growth. However, the confluence of several of these
attributes point to long-term economic expansion.
Once the markets are identified using the aforementioned criteria,
metros that benefit from those factors, but are major markets
are not included. Markets with demand generators that include
technology and energy are performing better than others. It
remains to be seen what effect plummeting oil prices will have on
energy dependent sectors. Accordingly, we did not including any
energy centric markets on our list4. Since there are few barriers to
entry in most American metro areas on the supply side, focus is
placed on long term sustainable demand.
Educational Attainment
Metro areas with high education attainment levels have experienced
much more economic growth than those with significantly below
average education rates. This trend will likely continue and reinforce
itself as college graduates self-sort to places with other college
graduates. This takes the form of a persistent cycle in which
“knowledge breeds knowledge” 5. As the overall American population
grew more educated between 1970 and 2010, metro areas became
less alike in their rates of college degree attainment6. “A 10%
increase in the percentage of an area’s adult population with a
degree in 1980 predicts six percent more income growth between
1980 and 2000” 7. “Differences in adults’ rate of bachelor’s degree
attainment are associated with nearly three-quarters of the variation
in per capita income among metro areas in 2010” 8. “Metro areas
where more than 33% of adults were college-educated had an
average unemployment rate of 7.5 percent in early 2012, compared
with 10.5 percent for cities where less than 17% of adults had a
college degree”, according to Edward Glaeser9. Aside from serving
as a proxy for the overall economic health of a metro area, education
attainment rates point to more office-using jobs.
Some of the nation’s highest educational attainment levels are in
the major market metro areas. The highest is Washington, DC with
46.8% of residents having achieved a Bachelors Degree or higher.
The top 10 are rounded out by San Jose 45.3%, Stamford, CT
44%, San Francisco 43.4%, Madison, WI 43.3%, Boston 43.0%,
Raleigh 41%, Austin 39.4%, Denver 38.2% and Minneapolis
37.9%10. The national metro average is 32%.
Demographic Trends
A young growing population is important, as overall long-term
demographic trends are cause for concern for office space
demand. Once baby boomers leave the workforce in growing
numbers between 2015 and 2030, there will be fewer workers
to fill office buildings. Metros with a growing college educated
millennial population (born between 1980 and 2000) will have
a higher demand for office space.
Population growth alone is not sufficient to fill office buildings.
The focus needs to be on college educated population growth.
College educated millennials will occupy office buildings well in to
2030 and will not begin retiring until 2045 and beyond. Employers
favor locating and expanding operations in metro areas that have
a young, highly educated, and growing workforce. Accordingly, we
considered which metro areas have an increasing level of educated
young people.
The number of YCEs has increased 25.2% from 2000 to 2012
in the 51 largest metro areas11. The share of the YCE population
with a 4yr degree in 2012 was 37.5% in the 51 largest metro
areas. Markets that exceed the top metro average growth of
25.2% between 2000 and 2012 portend future economic growth
and demand for office space relative to other markets. Seventeen
metro areas experienced growth of 30% or more and have an
existing share of YCEs equal to or greater than 30%. This is
highlighted in Table 212 .
Table 2
College Graduates Aged 25 to 34
Source: Joe Cortright, City Observatory
This list generally follows a pattern of self sorting in which college
educated Americans migrate to metros with economic growth
opportunities. This is causing certain metros to diverge significantly
from others. Oklahoma City and Houston benefited from a growing
energy sector. Greater Salt Lake City benefits from internal population
growth, in-migration, and a healthy high-tech sector. Nashville has
benefitted from a growing healthcare sector, successful entertainment
industry, relatively low cost housing, and no state income tax. Charlotte
Beyond The Big Six: Identifying Alternative Us Office Markets Based On Long Term Demand Generators