Suburban Office Buildings

August 30, 2017

With investment capital becoming available, demand for commercial real estate continues. Suburban office buildings remain many investors primary acquisition target.

These investors reason that a suburban office building that can be purchased at a price below replacement cost must be a good buy. Careful choices must be made, as there must be a demand for office space in the area and a gradual increase in rents. Since rents have increased in most submarkets, the long-term demand for office space looks good.

Suburban vs. Downtown

Recovery in suburban office markets has outpaced downtown markets because the suburban markets began from a more disadvantaged position. Overbuilding during the 1980s was much greater in the suburbs due to the lower cost of land and the economic feasibility of constructing smaller buildings. Consequently, the national suburban office vacancy rate at the end of the decade was approximately five percentage points higher than the national downtown rate.

Construction and Absorption

Recent years have brought many positive changes in the U.S. office market. The biggest reason was the almost complete absence of new construction for several years. Just 5 million feet of new space was delivered annually during this period, while absorption averaged 42 million feet annually.