Suburban Offices Pace Real Estate Recovery
Suburban office buildings dominated the real estate recovery again in the second quarter amid shrinking vacancy rates and rising rents, helping to push commercial real estate prices in the United States to their highest levels since late 1991, according to an industry report released Monday.
“The market is as healthy as it’s been in recent memory,” said Dan O’Connor, executive editor of the quarterly report, National Real Estate Index.
Gains in suburban office property, long sought after by companies fleeing expensive downtown areas, helped push the composite price index up 1.4% in the quarter. It’s the 13th straight quarter that the index--which also includes downtown offices, warehouses, shopping centers and apartments--has risen and comes on the heels of a 0.7% gain in the first quarter.
The index tracks price and rent trends in 57 metropolitan areas and is up 5% for the year to its highest point since September 1991. California paced the rise, with prices appreciating at an annual rate of about 22%, the report said.
The report is published by Newport Beach-based Koll Co. and edited by accounting firm E&Y; Kenneth Leventhal.
Spurred by a strong economy, better than expected job gains as well as the continuing trend of companies moving out of downtowns for less-expensive space, the value of offices located in the suburbs rose an average 2.8% in the three months ended June 30, according to the study. Rents rose 2% in the quarter.
While such trends are good for the landlord, they are less than welcome for companies seeking to leave high-rent downtown areas. Fewer concessions and free rent, as well as higher prices in many locations are what companies are finding in the traditionally cheaper suburbs. At the same time, this trend is just beginning to strengthen the center-city office rental market that’s been in a long slump.
The national vacancy rate for suburban office properties has fallen to about 12% since peaking at just above 21% at the end of 1990, according to CB Commercial Real Estate Group Inc.
Properties in the West and Sunbelt states turned in the best showing in the quarter, with prices up 5.4% and rents rising about 3%, National Real Estate said.
The index measuring apartment performance rose 2.4% to $69.59 a square, after a 1.1% gain the previous quarter. Average rental rates increased 1.4% in the quarter to $10.92
Apartments in California paced the sector.
For the 12-month period, the apartment index rose 8.4%, even as construction and a vibrant housing market threaten to keep future gains modest.
The industrial property index posted a 0.7% gain to $35.08 a square foot. The index is now up 4.6% over the previous 12 months. Rents rose 5% in the year.
Construction rose 60% last year to almost 46 million square feet, according to real estate broker Cushman & Wakefield Inc.
The downtown office index rose 0.6% in the quarter and 3.7% for the year to $147 a square foot. Rents rose 1.3% to $23.13 a square foot.
