Suburban Markets Leading Office Recovery

Overall office vacancy rates in central business districts shot up by nearly 420 basis points over the past seven quarters, while suburban counterparts posted a rise of nearly half that. And as companies continue to grapple with post-COVID return-to-work plans, suburban markets are leading the sector’s slog toward recovery. 

“While the pandemic-driven downturn adversely impacted virtually all office markets across the US, the impact on vacancy rates in CBD locations has been more pronounced than in the suburbs,” Colliers analysts note in a recent report on the sector’s fourth-quarter performance.

The gap between overall suburban and CBD vacancy levels narrowed from 190 to 50 basis points over the last seven quarters, according to Colliers, while vacancy fell in 41 suburban markets in Q4 2021, in contrast to 28 CBD locations.

Meanwhile, suburban absorption was 9.7 million square feet in the fourth quarter compared to negative 719,525 square feet across the CBD markets. Two-thirds of suburban markets Colliers analyzed posted positive absorption in Q4 2021, in contrast to 55% of CBD markets.

“Pretty much anywhere where there’s a lesser commute or you’re in a suburban area or a less dense area—that’s from an office standpoint where folks are most likely to return,” Gil Borok, Colliers US CEO, told CNBC’s Squawk On The Street last month. “And in terms of opportunities, if you’re an investor, obviously those markets follow suit.”

CBDs “are not completely dead,” but Colliers is seeing more interest in suburban markets, Borok said.