| NEW YORK, July 9
NEW YORK, July 9 U.S. suburban office space has
become a favorite among developers and is attracting tenants
squeezed out of downtowns by surging rents, according to a
report by real estate services company CB Richard Ellis Group
The amount of newly completed U.S. office space climbed to
about 11.5 million square feet in the second quarter, and
roughly 10 million of that was in the suburbs, according to the
firm's U.S National Office Vacancy Index, released on Monday.
Tenants quickly claimed the new space, and more, absorbing
17 million square feet, with 14 million in suburban buildings.
"The markets are receiving new space and still want more,"
said Ward Caswell, CB Richard Ellis's U.S. director of
"We saw most of the construction in the suburbs," he said.
"But we also saw most of the demand in the suburbs. The suburbs
have definitely and will always be a bargain compared to
For the past three to four years, the U.S. office market
has been boosted by strong U.S. job creation. Vacancy rates in
the second quarter continued to fall.
"At this part of the cycle you're always trying to see if
there's going to be too much construction," Caswell said. "This
stuff takes a while to come on line, and we have seen a nice
steady growth in the construction level. But what we're seeing
is that construction is still outpaced by absorption."
Demand from growing economies such as China has driven up
the cost of building materials and construction equipment. That
has curbed the overbuilding in the United States seen in the
1980s and that led to an early-1990s real estate depression.
"What we're seeing in the U.S. is a stable platform, so for
investors this is very good news seeing these numbers today,"
In the past three years, investors have snapped up office
buildings in key U.S. cities and quickly sold them at a profit.
But many experts don't expect the steep price rises to
continue, meaning investors will seek returns through rent.
"For tenants, this is an indicator that rents are going to
rise," Caswell said. "While there is new space coming online,
which gives them more options to chose from, there is even more
competition for that space."
The trend should help both the office landlords in key U.S.
cities -- companies such as Vornado Realty Trust (VNO.N),
Boston Properties Inc. (BXP.N) and SL Green Realty Corp.
(SLG.N) -- and those who focus on suburban offices, such as
Brandywine Realty Trust (BDN.N), Highwoods Properties Inc.
(HIW.N) and Colonial Properties Trust CLP.N.
Nationally, the vacancy rate was 12.6 percent, down 0.2
percentage points from the first quarter and 1.1 percentage
points from the year-earlier quarter.
Downtown office vacancy last quarter was 10.6 percent, down
0.2 percentage points from the first quarter. Suburban office
vacancy also fell 0.2 percentage points, to 13.7 percent.
At 3.1 percent, Charlotte, North Carolina had the lowest
downtown office vacancy rate. Midtown Manhattan followed with a
4.8 percent vacancy rate. Downtown Manhattan was third with a 7
percent vacancy rate. Boston had a 7.1 percent rate, and the
top five was rounded out by Las Vegas, posting an 8.5 percent
The lowest suburban office market vacancy rates were seen
in Florida with the suburbs of Miami posting the lowest vacancy
rate at 6.5 percent. The Fort Lauderdale suburbs were next at 7
percent, and the Orlando suburban market was third at 7.7
San Jose, California saw the greatest vacancy rate
improvement among downtown markets, falling 5.6 percentage
points to 14.4 percent. Tucson, Arizona's downtown vacancy rate
dropped 3.8 percentage points to 12.2 percent, while Houston's
rate fell 2.5 percentage points to 11.9 percent.
Cincinnati, Ohio led as the most-improved suburban market
with a 2.1 percentage-point fall to 18.5 percent. The suburbs
of Columbus, Ohio fell 1.7 percentage points to 19.3 percent,
while Kansas City suburbs dropped 1.5 points to 17.2 percent.
"I'm big on Ohio," Caswell said. "I still think as long
term, the Midwest is a real bargain"
But Detroit claimed the spot as having the greatest vacancy
rates, with its downtown vacancy rate coming in at 27 percent
and the suburbs at 24.6 percent.