Suburban vacancy rates hit historic lows

Real Estate Weekly, Nov 30, 1994

As a result of a high volume of leasing activity, vacancy rates reached historic lows in suburban markets in the third quarter of 1994. Similarly, downtown markets continued to show signs of recovery, according to the international real estate services firm Cushman & Wakefield, Inc.

The firm's study of 44 markets nationwide showed the national suburban vacancy rate dropped to 17.3 percent from 17.8 percent in the second quarter of 1994, add from 19.6 percent in the third quarter of 1993.

Led by Portland (7.8 percent), San Francisco Peninsula (8.2 percent), and Bellevue, Wash. (9.5 percent), suburban vacancy rates reached their lowest level since Cushman & Wakefield began tracking them in the mid-1980s.

The national vacancy rate in the downtown markets of major cities decreased to 17.7 percent, from 17.8 percent in the second quarter of 1994, and from 19.1 in the third quarter of 1993. More significantly, the vacancy rate in downtown markets has dropped to its lowest level since the fourth quarter of 1990, just prior to the last recession.

"We are in a sustained modest expansion now, with relatively low inflation and moderate white collar employment growth," said Arthur J. Mirante II, president and chief executive officer of Cushman & Wakefield. "Those factors are positive signs for the recovery of our real estate markets."

"The suburbs continue to remain attractive as a lower cost alternative," Mirante added.

The lack of new construction persists: during the third quarter, 160,000 square feet of new construction was added in the suburbs, while 1700,000 square feet - The Lighthouse Building in Midtown Manhattan tan which will be fully occupied by the non-profit organization - was added in the major cities.

This compares to the third quarter of 1990, when 39.2 million square feet was added in the suburbs and 17 million square feet was added in the downtown markets.

In the suburban markets, Dallas (7.6 million square feet leased this year), Northern New Jersey (4.9 million square feet), Denver (4.9 million square feet), and Phoenix (2.3 million square feet) led the country with healthy leasing and positive net absorption during the first nine months of 1994.

Some downtown markets across the nation have also had strong leasing, positive net absorption and lower vacancy rates. Chicago (6 million square feet leased this year), San Francisco (3.4 million square feet), Boston (3.3 million square feet), Houston (1.6 million square feet) and Portland (913,787 square feet) have led the way in leasing activity thus far this year.

Midtown Manhattan (15.7 million square feet leased) has been a strong market, but additional sublease space coming on the market has had a negative impact on its vacancy rate and absorption.

Several markets have experienced significant decreases in their vacancy rates in both the suburbs and the major cities, including Chicago, Portland, Boston and Fort lauderdale.

"The long term prognosis across the nation for both the major cities and the suburbs is good," Mirante said. "A stable economy is positive for both segments. The dynamics are there now for steady growth."