One reason is that more space was placed on the market in CBD locations.
Suburban markets are leading the post-pandemic office sector recovery, with absorption hitting 2.2 million square feet in the first quarter.
By contrast, CBD office markets posted negative 2.6 million square feet of absorption during the same period. CBDs have struggled since the onset of the downturn, with vacancy rates rising by 470 basis points over the past eight quarters compared to 280 basis points in the suburbs.
Vacancy levels in CBD and suburban markets are now equal at 15%, marking a first for the metrics. But Colliers experts say the equilibrium can be attributed to a combination of more space being placed on the market in CBD locations as well as a higher share of new deliveries in those markets. Vacancy fell in 50% of suburban markets in the fourth quarter, and by 46% in CBD locations.
Earlier this year, Colliers US CEO Gil Borok told CNBC that the firm is seeing more interest in suburban markets from buyers.
“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,” he said. “And in terms of opportunities, if you’re an investor, obviously those markets follow suit.”
Colliers also points out that office investment activity is approaching pre-pandemic levels, with total sales volume in Q1 2022 ticking up 59% year-over-year to hit $35.1 billion and office values rising 10.3% year-over-year. Again, suburban markets are attracting the most investment, with buyers socking $23.5 billion into suburban assets in the first quarter. By way of comparison, CBD locations saw just $11.6 billion in new investment in the same period.
Pricing was $293 per square foot on average in the quarter, with averages hitting $392 psf in CBD markets and $264 psf in suburban regions.
Sales activity was dominated during the quarter by two deals in New York City comprising a combined $3.5 billion: Alphabet Inc.’s $2.1 billion Hudson Waterfront purchase for Google’s New York headquarters and Blackstone’s purchase of One Manhattan West for $1.4 billion.