Brief | Intelligent Investment

Suburban Office Markets Recovering Faster than Downtowns

02 Jun 2022 2 Minute Read

U.S. suburban office markets are recovering at a faster pace than downtown markets with stronger rent growth and vacancy reduction. In most markets, downtown office buildings remain impacted by the slow return of residents and office workers who fled during the height of the pandemic.

The average suburban asking rent increased by 0.7% quarter-over-quarter in Q1, while the downtown average rose by 0.3%.

Figure 1: Downtown & Suburban Office Rent Growth

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Source: CBRE Econometric Advisors, Q1 2022.

The overall downtown office vacancy rate increased by 6.2 percentage points since Q1 2020, while the suburban office vacancy rate increased by only 3.6 percentage points. The suburban vacancy rate of 16.9% is 20 bps lower than its pandemic-era high, while the downtown vacancy rate of 16.8% is the highest in the past 20 years. The 10-basis-point gap between downtown and the suburbs is the narrowest it has been in more than 20 years.

Figure 2: Downtown & Suburban Office Vacancy Rates

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Source: CBRE Econometric Advisors, Q1 2022.

A majority (26) of the top 40 U.S. suburban office markets have vacancy rates below the pandemic-era peak. The San Francisco Peninsula has shown the most improvement, with vacancy down by 2.2 percentage points, followed by San Diego and Milwaukee, which fell 1.9 and 1.8 percentage points, respectively. Nashville, Austin and Columbus were among the top markets for suburban rent growth to go along with strong vacancy improvement.

Figure 3: Suburban Markets with Strongest Vacancy Improvement

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Source: CBRE Research, Q1 2022.

Slightly more than half (22) of the top 40 downtown office markets had vacancy rates below the pandemic-era peak. Sun Belt markets, which benefited from in-migration over the past several years, accounted for six of the top 12 downtown markets for vacancy rate improvement: Tampa, Miami, Nashville, San Diego, Austin and Orlando. Many of these, notably Tampa, Miami, Austin and Nashville, are also among the downtown markets with the strongest rent growth since Q1 2020.

Figure 4: Downtown Markets With Strongest Vacancy Improvement

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Source: CBRE Research, Q1 2022.