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
Mixed-Use | Oct 25, 2018
Philadelphia’s uCity Square kicks off major expansion drive
This innovation center has several office, lab, and residential buildings in the works.
Office Buildings | Oct 25, 2018
Stantec consolidates three Portland-area offices into one downtown location
Stantec worked with Ankrom-Moisan Architects on the design.
Office Buildings | Oct 8, 2018
Netflix leases Epic, an under construction office tower in Hollywood
Gensler designed the building.
Office Buildings | Oct 1, 2018
NASA’s Cleveland-based Glenn Research Center to receive a new centerpiece
TEN Arquitectos designed the building.
Office Buildings | Sep 19, 2018
Manhattan’s Meatpacking District has a new tallest tower
CetraRuddy designed the office building.
Office Buildings | Sep 17, 2018
TaylorMade Canada HQ includes golf laboratory and product showroom
ZZen Design Build was the general contractor for the project.
Office Buildings | Sep 5, 2018
Facebook’s new Frank Gehry-designed Menlo Park HQ extension includes a massive green roof
Level 10 Construction was the general contractor for the project.
Office Buildings | Aug 27, 2018
The open office isn't dead
The degree of open or enclosed doesn't matter in high-performing work environments. If the space is designed to function well, all individual space types are rated as equally effective.
Office Buildings | Aug 17, 2018
An elliptical office building goes with the flow in Boston
Exterior design cuts waste, saves energy, says Building Team members.