Are College Towns Recession Proof?

Since the onset of the COVID-19 pandemic, there has been an undeniable shift from the urban core to suburban areas. Tertiary markets have been the beneficiary of this movement with their population growing, property valuations rising, and steady growth of local businesses. While the urban core and primary markets have seen higher vacancy rates, specifically in the office space, tertiary markets have continued to return stable numbers. 

The common perception that demand in the office sector is diminishing across the board is inaccurate. Momentum in tertiary markets for office space is highlighted by high absorption rates and increased activity in office transactions. Of the office transactions in 2022, over 70 percent have occurred in suburban areas. Due to the lack of volatility and consistency of returns over the last decade or so, investors are realizing the benefit to adding office assets in tertiary markets to their portfolio, whether it is their main strategy or a hedge on their urban office assets.

The differentiators between vacancy numbers in the urban core office sector and the office sector in college towns can be attributed to multiple factors. People working in college towns desire a community the office environment provides, enjoy a relatively short commute to work, and are inspired by an entrepreneurial attitude of local business owners in college towns that occupy the majority of office space. This is evidenced by large corporations continuing to struggle to persuade workers to return to the office and small businesses being fully back to normal. The trend that is working from home may be taking off in the urban core, but in college town USA this is simply not the case.

Submitted by Ryan Morris.