A new Wall Street Journal article titled "Suburban Office Markets Trail Downtown Rivals" takes a look at the recovery and growth of the office markets in different areas, observing that it's likely going to take a longer time for suburban-office-building owners to rebuilt their tenancy rates compared to properties in downtown areas. According to data from Reis Inc., suburban office properties accounted for 70% of the 135 million square feet of previously occupied space that went vacant since the real estate downturn; many owners have tried to fill these gaps by sharply cutting rates to entice new tenants. Victor Calanog, research director of Reis, noted that "combined with more job functions being outsourced or mechanized, demand for suburban-office space will just not be as strong as before, unless landlords lower rents significantly. All of these factors imply lower returns for REITs focused on suburban-office space."
An excerpt from the article:
Fourth-quarter earnings reported by publicly traded real-estate companies over the past few weeks reinforced a trend that has been taking shape since economic recovery began: Vacancies continue to rise in some suburban buildings even as downtown properties fill up.
Downtowns are performing better partly because the suburbs were hit harder by the housing collapse, which caused the closings of mortgage lenders, home builders and other small businesses that tend to be in the suburbs. Also, there was more construction in the suburbs than downtowns during the boom.
Demand in some cities has improved, thanks to their success in revitalizing entertainment districts and attracting new retail and residential development.
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