Economists' Outlook

Housing stats and analysis from NAR's research experts.

Cheaper Rents and Migration in Secondary Markets Boosting Demand for Tech, Finance, and Medical Office Space

Secondary cities are seeing a modest increase in office occupancy in the first quarter of 2021. These secondary metro areas have less expensive office rent compared to nearby major markets. Net domestic migration has also driven the demand for office space by information technology, biosciences/medical/health care, and finance companies. Get more data and analysis at Commercial Market Insights Report and Commercial Real Estate Metro Market Reports.

Office occupancy declined in 2021 Q1 but some secondary markets bucked the decline

Office occupancy continues to shrink in 84% of 891 metros, including in the gateway cities of Boston, Chicago, New York City, Washington DC, Los Angeles, and San Francisco.2 However, office occupancy rose in a few secondary/tertiary markets in the first quarter of 2021, with a total positive absorption of 1.1 million. In the West region, office occupancy increased in San Mateo County, San Diego, Sacramento, and Tucson. In the South region, office occupancy increased in Tulsa, Suburban Maryland, Fredericksburg, and Fort Myers/Naples. In the Northeast region, office occupancy increased in Brooklyn, Buffalo, and Syracuse.3

While the 1.1 million positive net absorption in these secondary/tertiary markets is a drop in the bucket compared to the 41 million square feet of lost occupancy in 2021 Q1 (and 138.4 million square feet since 2020 Q2), the increase in occupancy in secondary/tertiary markets presages is an indicator of the resiliency of smaller markets which have cheaper office rent and more affordable homes which have resulted in net domestic in-migration. Companies such as Apple are moving to less expensive cities.

Cheaper office rents in secondary/tertiary cities

The relatively low rent in secondary/tertiary cities is incentivizing more companies to locate in these areas. Of course, not every company will relocate to the secondary areas, but companies that provide health/medical, financial, and legal services, or other transactional services to the rising population in those secondary/tertiary areas will be the main drivers of demand in these areas.

For example, the office asking rent in San Francisco is $74 /square foot. Move further south to Los Angeles and the rent falls to $45/square foot, or in San Diego where the rent falls is slightly lower at $41/square foot . Or move eastward to Sacramento and office rent falls to $25/square feet. Apple just leased an office in San Diego in the first quarter where it will create 5,000 jobs.4

In New York City-Midtown, the asking rent is $71/square foot, but go up to Buffalo, Syracuse, and Rochester and the office rent falls to just about $20 per square foot.

Net migration in secondary/tertiary cities

The net in-migration in tertiary/suburban areas means a demand for real estate services, health care/medical care (hospitals , urgent care, dental offices), financial services, legal services, and other professional and administrative services.

During the period April 1, 2010- July 1, 2020, Lee County experienced the largest net domestic migration among Florida's counties, with 144,482 people moving into the area. California lost 1.1 million people, 70% from Los Angeles County, as well as Santa Clara, Orange, San Diego, and San Francisco. However, some secondary/tertiary areas had a net in-migration like Riverside (149,712) and Sacramento County (17,924). Oklahoma experienced positive net in-migration of 41,279 during the decade, some of whom went to Tulsa (5,681).

Use this data visualization to check out migration trends by county:

Markets with net increase in office occupancy in 2021 Q1

Here are the cities/areas that saw an increase office occupancy in the first quarter of 2021. Technology, finance, biosciences/medical/health care, and government services drove the demand for office space in these areas:5

San Mateo

The largest increase in occupancy was in San Mateo County where leasing activity is being propped up by the demand from life science companies setting up in the area (Arcus Biosciences, Vaxcyte, and Plexxion). Rents in San Mateo, which is 19 miles from San Francisco, a bit cheaper, at $71/sq.ft. compared to $73/sq.ft. in San Francisco.

San Diego

Office asking rents are much cheaper in San Diego, at $41/sq.ft. Apple just put up an office In the San Diego area as well as life sciences/medical companies (Alphatec Spine, AnaptysBio, Dexcom) that drove leasing activity in 2021 Q1.


Office rents are just a third of the rent in San Francisco, at $ 25/sq.ft.  A health care company providing managed care (Centene) accounted for most of the leasing volume. The demand for health care is a result of the growth in Sacramento's population in part from the net domestic migration[6] during the period 2010-2020, with a net inflow of 17,924 people.


The bulk of the increase in office occupancy was from TMC Healthcare, which runs the Tucson Medical Center.  Pima County had a net positive domestic migration of 35,533 during the period 2010-2020, and with a rising population comes the demand for health care. Tucson's office rent is $20/sq.ft., slightly cheaper than Phoenix's $27/sq.ft.


One of the largest new leases was signed by the General Services Administration signed in the third quarter of 20201. Its economy has diversified from energy into aviation, electronics manufacturing, and information technology services. Tulsa had a net domestic migration of 5,681 people during 2010-2020. Rent in Tulsa is one of the cheapest, at about $16/sq.ft. compared to Oklahoma City's $20.sq.ft.

Fort Myers/Naples

Ameriprise Financial and the Lee County government accounted for the leasing activity in the first quarter of 2021. Ameriprise Financial provides financial planning products and services, including wealth management, asset management, insurance, annuities, and estate planning, catering to the needs of Florida's seniors and retirees moving into the area.  Lee County had a net domestic migration of 144,482 people during 2010-2020.

Suburban Maryland

In the suburban Maryland market, a big lease came from Industrious, a provider of flexible workspace, an indication that flexible workspace solutions are anticipated to increase in the post-pandemic environment.


The area benefited from the demand from Defense Department contractors near Quantico Marine Corps base and the FBI Academy. Office rent in Fredericksburg is just at 24/sq.ft., less than half the office rent in Washington DC of $57/sq.ft. and slightly cheaper than in Northern Virginia of $34/sq. ft. Fredericksburg City had a net domestic migration of 1,669 people during 2010-2020.


In the Binghamton market, finance and IT service companies drove the demand for office space in 2020 (e.g., Progressive Insurance, BlueStorm Technologies, D&R Solutions). Office rent in Binghamton is $13/sq.ft.


The educational , medical , and aerospace industries have driven the demand for office space in Syracuse. The lease transactions in 2020 Q4 involved a finance company (M&T Bank, Morgan Stanley Smith Barney), IT company (ProQuest), an engineering consulting company (Anchor QEA),  law firm (Costello Cooney and Fearon), and a convenience store company (Speedway, LLC).

1 Metro areas or parts of metro areas as reported by Cushman and Wakefield

2 Source: Cushman and Wakefield

3 ibid

5 Cushman and Wakefield local MarketBeat reports

6 US Census Bureau Population Estimates Vintage 2020