Suburban Office Markets to Strengthen

Mortgage Banking, November 2006 | Go to article overview

Suburban Office Markets to Strengthen


Look for U.S. suburban real estate markets to gain momentum over the next year as available space continues to decline in cities across the country, while rent growth is forecast across the nation, according to New York-based Cushman & Wakefield.

Cushman & Wakefield's U.S. Office Market Barometer cited a variety of factors in the shift to suburbia, including a lack of new construction in major central business district (CBD) markets, declining vacancy rates and rising rents in the CBDs.

The report predicts rent growth in office markets nationwide. San Francisco, Boston and Midtown New York should experience above-average momentum-driven by strength in the finance and business sectors, both fundamental to job growth-which will lead to rent spikes, according to Cushman & Wakefield.

As of midyear 2006, office leasing activity in CBDs combined was recorded at 40.5 million square feet, slightly lower than midyear 2005. Suburban market leasing levels were slightly above 2005. The CBD has a national office vacancy rate of 11.9 percent, down from 12.6 percent in the first quarter of 2006 and down 100 basis points from last year.

The CBDs are leveling off, with the market at or rapidly approaching equilibrium in virtually all U.S. CBDs, according to Maria Sicola, senior managing director of research for Cushman & Wakefield.

"Space availability and rental rates in major cities are now reaching pre-economic downturn levels," said Sicola. "The lack of space options in major cities has made the suburban markets much more attractive and viable."

The Cushman & Wakefield U.S. Office Barometer ranked the emerging suburban markets of Oakland, Los Angeles South and San Francisco, California; Minneapolis; Chicago; Boston; Memphis, Tennessee; and Seattle in the Leading category. Four particular markets-Chicago, Oakland, Minneapolis and Seattle-all will experience declines in vacancy rates of more than 200 basis points over the next 24 months. …

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Suburban Office Markets to Strengthen
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