By Marc DeLuca, KBS Chief Executive Officer and Regional President, Eastern U.S.

This article originally appeared on Forbes.com.

In the era of remote and hybrid work, distinct differences can be observed in the way companies are using their office space.

Some markets are experiencing surprisingly strong office building occupancy rates and increased office real estate sales transactions at a time when reports of rising vacancy rates are widespread. In fact, Bloomberg reported in August 2023, “Workers in the US Midwest are coming into offices more often than the rest of the country.” But as I explained in a previous Forbes article, “Even though the term ‘office’ has been broadly used to categorize workplaces, not all office space is created equal.” Class A and A+, or first-class, office spaces saw the most activity in terms of new leases in 2023.

This aligns with my own company’s findings. Among the dozens of U.S. markets in which our firm invests and consistently tracks, we are seeing an uptick in occupancy in the premier office buildings we own and operate in certain Midwest markets, including Kansas City, Minneapolis and Chicago. For example, we own a 40-story office building in the heart of downtown Chicago. The building moved from 75% occupied pre-pandemic to nearly 100% occupied now. Similarly, in the Minneapolis metro, we recently signed two lease expansions and welcomed a firm to a 158,000-square-foot space at a 710,332-square-foot office tower and retail complex.

These signs of resilience run counter to the narrative in many gateway cities. Although many factors lead geographical areas to flourish, I believe the recovery these Midwest markets are enjoying is due to some significant economic and societal trends.

Tempered Inflation Rates

While inflation is still high, some markets have been able to mitigate the impact more successfully. The Twin Cities is one of those markets. As explained by KARE 11, a local news station, the Minneapolis metro area became the first major metro area in the U.S. to hit the goal of 2% inflation. The Minneapolis-Saint Paul region clocked in at a rate of 1.8% in May 2023 and a mere 1% the following July.

What led to this achievement? Accelerated housing construction is one factor. Strengthening the housing inventory alleviates upward pressure on home prices, which comprise a meaningful percentage of the Consumer Price Index used to measure inflation, according to KARE 11. Beyond traditional housing construction, the Twin Cities in particular have done a stellar job of adding to its affordable housing inventory. Citing data from the Itasca Project, KARE 11 also said 21,673 new affordable housing units were delivered to the seven-county metro in 2022. This construction has had a ripple effect throughout the city. Between February 2017 and February 2023, rental rates in Minneapolis rose by only 1%.

Part of the reason for the increase in housing development is that the city of Minneapolis removed zoning regulations that allowed only single-family homes in certain neighborhoods and provided rental assistance and subsidies to the tune of $320 million between 2018 and 2023, per Bloomberg. These two moves have created a local housing market that is both more competitive and more affordable leading to decreased rates of inflation.

Typically, as inflation decelerates in a region, investor confidence rises, capital flows return, and employers are once again encouraged to commit to real estate for their businesses. In addition, as inflation begins to moderate, experts are less inclined to believe there is a serious recession on the horizon. In fact, there has been some talk of a “soft landing” as opposed to a serious downturn, though I believe interest rates may remain higher for longer than originally projected.

From my perspective, if other markets observe the greater impacts of Midwest markets’ inflation-lowering strategies, they might follow suit and cause a ripple effect that would bring us closer to that soft landing nationally.

Quality Of life

 In recent years, many people and companies have been inspired to move away from large metro areas, many of which are on the coast, where the cost of living is typically higher. This has encouraged population growth in areas of the country that are easier on the wallet, like the Sun Belt and parts of the Midwest.

With many Midwest towns revitalizing and providing community and natural amenities, they can more easily compete with the gateway markets for top talent and businesses. In fact, according to TechCrunch and Fox 28, Columbus, Ohio, is fast becoming the “tech hub” of the Midwest. Furthermore, Inc. has listed 203 companies “making an outsized impact” in the region in industries from real estate to telecommunications.

Lessons For Businesses

 As the Midwest ups its quality-of-life game and experiences a resurgence in office space leasing, office-using firms might be increasingly drawn to the area, which could further increase investment in this part of the country. National or global business leaders may consider establishing or growing their presence at an office property in the U.S. heartland. Whether you base your headquarters in one of these markets or extend your footprint, occupying space at a Midwest asset could provide companies access to a fresh talent pool.

However, while I believe the Midwest office market is better positioned for recovery than markets in many other parts of the country, stakeholders should always adhere to best practices in office property ownership and management regardless of where these assets are located. Even within a “hot” market, office buildings must be in a strong location. This means they should be safe from crime; easily accessible to public transportation and/or major roadways; and, ideally, walkable to dining, shopping, and daily-needs retail outlets. The buildings themselves should be well maintained and attractive, with modern amenities appropriate for the market and the needs of potential tenants, such as excellent internet connectivity, energy-saving utilities, and well-equipped conference spaces.

Lastly, to draw employees to the office, the property should offer a comfortable and welcoming environment that’s conducive to both collaboration and heads-down productivity, as well as flexibility for tenants to configure their space as needed for future change and growth.

Learn more about KBS and the commercial real estate industry at KBS.com/Insights.