Growing Office Rents

CBRE recently released the Spring 2017 North America Suburban Office Trends Report. Econometric advisors foresee positive net absorption ashutterstock_223250275nd rent growth will continue throughout suburban office markets in the United States. A handful of cities stand out for their growth.

For more than 27 quarters, the U.S. suburban office vacancy rate has refused to rise. Sluggish new supply in major suburbs cannot keep up with increasing tenant demand. Even suburbs that were slow to recover from the recession are now showing luster.  CBRE reports that several Florida markets, Milwaukee, Phoenix, and even Detroit posted year-over-year vacancy rate decreases of 200 bps or more in Q4 2016.

Submarkets that cater to thriving industries, such as technology, stand to benefit the most from this trend. Major suburbs that offer energy efficient spaces and top-end amenities will also do well.

The following 10 markets are slated for success throughout 2018.

Suburban Atlanta

Increasing by 10.1 percent, rates for Atlanta office space for rent ended 2016 at an average of $22.47 per sq. ft. Atlanta Business Chronicle reports that some areas of the metropolitan area just made history by breaking the $50 per foot barrier.

Cambridge, Mass.

The vacancy rate declined by 180 basis points by Q4 2016, ending at 3.8 percent. The average price came in at $65.26 per sq. ft. The new city of Cambridge has grown in large part due to the presence of technology powerhouses, Microsoft and Apple. The presence of academic professionals, employees of Cambridge Innovation Center and WeWork also contribute to the high demand for office spaces.

Suburban Fort Lauderdale, Fla.

At the end of Q4 2016, the suburb yielded 8.3 office rent growth, at a price of about $29 per sq. ft. New construction and the conversion of some retail spaces into office space may provide relief for tenants in the next few years.

Greenville, S.C.

Between Q4 2015 and Q4 2016, office rents grew by 9.7 percent, topping out at $17.37 per sq. ft., which is high for the area. A sudden spike in downtown projects has many companies turning to the suburbs to find space.

Suburban Louisville, Ky

Year-over-year rent growth proved favorable for the Louisville suburbs. Office rents increased 8.4 percent, ending at $17.96 per sq. ft. Several new projects are in process to ease the demand on office space but a shortage of construction workers to complete those projects may keep demand high in the foreseeable future.

Suburban Nashville, Tenn.

Just outside of the nation’s country musical capital, business is booming. Year-over-year office rent growth reached a whopping 16.2 percent. The peak price was $22.99 per sq. ft. by Q4 2016. New co-work spaces in The Nations are filling up faster than anticipated.

Oakland, Calif.

Yet another California suburb makes the list. Oakland ended Q4 2016 with average rents of $33.96 per sq. ft. The 11.4 percent year-over-year increase has left many nonprofits struggling to find space.

Orange County, Calif.

Office rents came in at $31.20 per sq. ft. by the end of 2016, reflecting an 8.8 percent increase. “Live/Work homes” are a growing trend in the area, providing small businesses and entrepreneurs with office options that are close to home—and don’t break the bank.

Palm Beach County, Fla.

Year-over-year, the vacancy rate dropped by 240 basis points to 16.5 percent. Several local businesses are exploring co-work options as a way to make the most of limited space.

Suburban Seattle

Between Q4 2015 and Q4 2016, rent rate growth for office space reached nearly 8 percent, ending at $27.50 per sq. ft. Amazon continues to expand its footprint in the region.

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AUTHOR

Erica Rascón specializes in online content creation and social media. She joined Yardi in 2011 after receiving her bachelor's degree from Kennesaw State University and serving in the Peace Corps. Erica's interests include sustainability, philanthropy, and the arts.

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