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Page 6 — Office Properties Quarterly — September 2017
Market Update
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R ecent trends signal
a demand shift to
suburban office
properties from
urban locations as
net absorption continues to
outpace supply. Nationally,
vacancy in the central busi-
ness district office space
has begun to rise, slowing
rent growth. On the other
hand, an increasing pace of
net absorption of space in
the suburbs is tightening
vacancy and maintaining
healthy rent improvements.
These suburban office
properties benefit from for-
ward-looking demograph-
ics. In 2015, the majority of
U.S. households, 64 percent,
resided in the suburbs and
that number should rise
as urban millennials form
families and move to larger
living spaces in suburban
locations. Many office ten-
ants are tapping into this
larger workforce already
located within the suburbs,
enticing
employ-
ees with
revamped
offices.
In an
effort to
recruit
and retain
employees,
suburban
tenants
have been
scouring
the market
for qual-
ity avail-
able space in locations near
retail and transportation
options. As a result of this
robust tenant demand, sub-
urban vacancy has fallen
roughly 300 basis points
during the course of the
recovery to 14.7 percent in
the second quarter. Sub-
sequently, suburban office
construction has height-
ened during the last two
years but remains far below
the deliveries recorded dur-
ing the previous cyclical
peak. Minimal completions
and steady absorption sig-
nal the potential for further
suburban vacancy improve-
ment.
The healthy demand also
has spurred rent growth;
the average asking rent is
up 9 percent from the 2008
peak. Asking rent is roughly
half of the average rent in
urban office space, moti-
vating tenants who may
have been priced out of the
urban core to move to the
suburbs.
The lower costs and avail-
ability of more land in the
suburbs have resulted in the
creation of large campuses
catered to professionals.
Many of these campuses
offer on-site amenities like
gyms or daycare centers,
helping create a work-life
balance many professionals
desire.
In Denver, a steady pace
of hiring underpins office
space demand. During the
previous 12-month period
ending in June, metro
employers created 28,700
jobs, up 2 percent year over
year and outpacing the
U.S. rate of growth. Office-
using employment moder-
ated during this time but is
expected to rise 1.9 percent
at year end. Job growth
and strong net absorption
Brian C. Smith,
CCIM
Vice president
investments,
Marcus &
Millichap, Denver
This year, nearly a third of all
completions will be located within
a half-mile of the E, F and R lines
in southeast Denver, highlighting
demand moving into the suburbs.