Suburbs, Sunbelt Will Outperform in Office

Cross cites Phoenix as well as office markets in Florida.

LOS ANGELES—The balance of power is shifting in the office sector from CBDs to the suburbs, CBRE Group says. Suburban markets generally are expected to outperform in 2017, a year that will also favor the Sunbelt.

Specifically, while suburban office markets still average higher vacancy rates than downtowns, they’re expected to fare better in what CBRE is forecasting as “a moderate slowdown” this year. The firm expects suburban vacancies to rise just 10 basis points to 14.5%, compared to the 30-bp increase that downtown offices are expected to withstand, albeit to 10.9%, “still well below the suburban vacancy rate.” CBD offices are expected to see a further slowdown in rent growth “as higher vacancy shifts bargaining power in the direction of tenants,” while suburbs will see rents grow by more than 2%.