Suburban Mixed-Use Office Markets in U.S. Outperform Downtown Peers

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Office Vacancies Hold Steady in Third Quarter

According to CBRE Group, Inc., vacant space in the U.S. office market held steady during the third quarter of 2016 at 13.1 percent. The national office vacancy rate remained at the lowest level since 2008, with a 30 basis points (bps) decline over the past year.
 
The office market is being helped by steady demand for space and limited new construction. "Firms are adding space, but at a more modest pace than in recent years, reflecting slower overall job creation," said Jeffrey Havsy, Americas' chief economist for CBRE. "With supply and demand relatively in balance, vacancy has plateaued for the moment, but the office market should remain healthy as new construction deliveries slow over the next 6-8 quarters."
 
Continuing a recent pattern, the suburbs outperformed downtowns, with vacancy falling 10 bps, to 14.3 percent in the suburbs, but increasing 20 bps, to 10.7 percent in downtowns. After lagging downtowns for much of the recovery, the suburbs have now performed better than downtowns for four straight quarters.
 
"Despite their rumored demise, the suburbs continue to perform soundly. This is especially true of those locations that offer, a live, work, play mixed-use dynamic and have good transportation access," noted Mr. Havsy. "The suburbs have been painted with a negative brushstroke, but that labeling masks the diversity among the various submarkets. Those locations that offer appropriate amenities, have good access and offer modern facilities continue to lease well."
 
A majority of U.S. markets saw improved conditions during Q3 2016, with vacancy declining in 37 of 63 office markets, rising in 22, and remaining unchanged in four. The largest quarterly declines in vacancy were recorded in Tucson (170 bps), Cincinnati (130 bps) and Raleigh (120 bps). West Palm Beach, Newark, Las Vegas, Albany, Riverside and Sacramento each declined by 90 bps or more.
 
Mid-sized markets have been the best performers over the past year.  Compared with Q3 2015, Tucson, St. Louis, Raleigh, Riverside, Oakland, Sacramento, Cincinnati and Tampa have experienced the sharpest declines in vacancy.
 
The nation's lowest vacancy rates in Q3 2016 were in Nashville (5.5 percent), San Francisco (6.7 percent), Raleigh (8 percent), Austin (8.1percent), Seattle (8.6 percent), Oakland (8.7 percent), San Jose (8.9 percent) and Pittsburgh (9.2 percent).