Reis: suburbs lead office space demand.

Author:Tucker, Michael

Suburbs continued to generate the bulk of demand for office space in the second quarter, reported Reis Inc., New York.

"Contrary to popular opinion, the suburbs are far from dead," said Reis Senior Economist and Director of Research Ryan Severino.

Overall, the national vacancy rate held steady at 16.6 percent during the quarter, Severino said. This ended three consecutive quarters of vacancy improvement and kept the rate at its lowest level since third-quarter 2009.

Suburban submarkets saw stronger net absorption than central business districts (CBDs) in 11 of the past 13 quarters, Severino said. "However, because inventory in the suburbs is nearly twice as large as inventory in the central business districts, net absorption there is not providing much contribution to vacancy decline yet," he said.

With the outlook for the labor market remaining relatively robust, Severino said both CBDs and suburbs should continue to improve and eventually strong net absorption in suburbs will contribute to more rapid vacancy declines. "However, the key is that not all suburban submarkets are equal," he noted. "There is a large rift between submarkets that are performing well and submarkets that are struggling."

At 13.3 percent, CBD office vacancy remained far below the suburban vacancy rate of 18.3 percent, Reis reported. "This is a reversal from the 1990s, when suburban vacancy was below CBD vacancy because employers were fleeing CBDs, which were relatively dirty, dangerous places," Severino said. "Today a number of employers are deciding to locate in or relocate to CBDs because they are cleaner, safer and offer...

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