Economy Watch: U.S. Suburban Office Markets Rebounding

Walkable, transit-oriented and amenity-rich office spaces in suburban markets are becoming increasingly in-demand by tenants, according to Avison Young's mid-year office report. Landlords are responding by retrofitting and updating their properties.

Source: Avison Young Office Market Report, Mid-Year 2017
Source: Avison Young Office Market Report, Mid-Year 2017

Office space users in the United States are displaying a preference for transit-oriented development, and co-working and flexible office-space operators are gaining market share, according to Avison Young’s second-quarter 2017 office market report. Landlords are responding by retrofitting common areas to include tenant amenities and social gathering spaces.

These preferences are contributing to the rise of speculative office suites in buildings’ available vacancy. Office owners also continue to renovate and repurpose their assets, with Class B buildings being upgraded to be competitive and obsolete buildings being redeveloped as apartments, schools or self-storage facilities.

Suburban office resurgence

Suburban markets with a sense of place—walkable, accessible to transit and with amenity, entertainment or destination retail—are emerging as their own urban centers, Avison Young reported. The resurgence of suburban space is no small thing, since the U.S. office market tracked by Avison Young comprised 5 billion square feet. About 3.3 billion square feet of that is in suburban markets.

Though overall U.S. vacancy remained the same as a year ago at 12.2 percent, the difference in market performance between the suburbs and downtowns is evident in net absorption. The suburbs finished the 12-month period ending mid-year 2017 with 30.5 million square feet of absorption, compared with 33.4 million square feet a year earlier.

By contrast, 2.4 million square feet of occupancy was lost in the downtown markets compared with 13.6 million square feet of positive absorption in the previous 12-month period, Avison Young reported.