In its latest report on the U.S. office market, JLL notes that a second-quarter rebound this year delivered 11.7 million sf of new office space. Much of what’s being built in the office sector is occurring in the central business districts of cities around the country, as companies gravitate closer to where they believe they’ll have their best shots at attracting Millennial workers.
But to paraphrase Mark Twain, news of the death of suburban office space may be greatly exaggerated. Corporate America hasn’t quite abandoned the suburbs to the extent that some experts were predicting not to long ago.
In its Second-Quarter 2017 Office Market Report, Transwestern singles out New Jersey, where “renewed interest” in suburban office properties helped push the Garden State’s overall average office rents to $26.42 per sf, nearly $2 per sf higher than five years ago and the market’s highest mid-year level since 2001.
CBRE this summer looked at the 25 largest suburban markets it covers, and found “they have performed better than is commonly perceived.” CBRE went on to state that suburban office submarkets with urban characteristics—higher densities of office space, housing, and retail, as well as transportation access—are in the best position to capture occupier demand.
CBRE also found that rents in more than half of the most established suburban submarkets exceed their downtown counterparts.
Despite the flight from suburbs to cities over the past few years by such high-profile companies as General Electric, McDonald’s, Aetna, and ConAgra, suburban and urban office properties that collateralize commercial mortgage-backed securities (CMBS) loans have comparable occupancy rates (89.1% vs. 89.6%), according to a new analysis by Trepp, a leading data provider to the CMBS and banking industries.
Suburban office loans account for one-third of outstanding CMBS debt. However, they are often more distressed than urban office loans, and have higher rates of delinquency. Image: Trepp
Trepp estimates that suburban office loans account for one-third of the $125.1 billion in outstanding CMBS debt. And new issuance for suburban offices reached $3.2 billion in the first half of 2017, up 43% compared to the same period a year ago. Trepp infers that from these data that “demand is still relatively steady” for suburban office space.
There are caveats, though, not the least of which being that suburban offices carry the highest percentage of distressed debt in the sector: 14.5%, compared to 4.9% for urban office loans. Suburban office loans also carry a noticeably high delinquency rate: 13.3%, which is down from 15.9% in April, but still nearly five percentage points higher than the broader office sector’s delinquencies.
In its analysis, Trepp quotes from Hartford Business, a journal in Connecticut, which observes that the nationwide migration toward urban office space is often a management trend, where companies are reallocating resources and their top talent to office space in cities, but still keep the bulk of their employees in suburban offices.
Related Stories
Market Data | Jan 31, 2022
Canada's hotel construction pipeline ends 2021 with 262 projects and 35,325 rooms
At the close of 2021, projects under construction stand at 62 projects/8,100 rooms.
Market Data | Jan 27, 2022
Record high counts for franchise companies in the early planning stage at the end of Q4'21
Through year-end 2021, Marriott, Hilton, and IHG branded hotels represented 585 new hotel openings with 73,415 rooms.
Market Data | Jan 27, 2022
Dallas leads as the top market by project count in the U.S. hotel construction pipeline at year-end 2021
The market with the greatest number of projects already in the ground, at the end of the fourth quarter, is New York with 90 projects/14,513 rooms.
Market Data | Jan 26, 2022
2022 construction forecast: Healthcare, retail, industrial sectors to lead ‘healthy rebound’ for nonresidential construction
A panel of construction industry economists forecasts 5.4 percent growth for the nonresidential building sector in 2022, and a 6.1 percent bump in 2023.
Market Data | Jan 24, 2022
U.S. hotel construction pipeline stands at 4,814 projects/581,953 rooms at year-end 2021
Projects scheduled to start construction in the next 12 months stand at 1,821 projects/210,890 rooms at the end of the fourth quarter.
Market Data | Jan 19, 2022
Architecture firms end 2021 on a strong note
December’s Architectural Billings Index (ABI) score of 52.0 was an increase from 51.0 in November.
Market Data | Jan 13, 2022
Materials prices soar 20% in 2021 despite moderating in December
Most contractors in association survey list costs as top concern in 2022.
Market Data | Jan 12, 2022
Construction firms forsee growing demand for most types of projects
Seventy-four percent of firms plan to hire in 2022 despite supply-chain and labor challenges.
Market Data | Jan 7, 2022
Construction adds 22,000 jobs in December
Jobless rate falls to 5% as ongoing nonresidential recovery offsets rare dip in residential total.
Market Data | Jan 6, 2022
Inflation tempers optimism about construction in North America
Rider Levett Bucknall’s latest report cites labor shortages and supply chain snags among causes for cost increases.