If there was one glimmer of light in the beleaguered office market, it was the momentum seen in the suburbs since the pandemic. Last year Colliers reported that vacancies in CBD offices were far higher than suburban offices, a marked pivot from earlier years. It did acknowledge that the rise in CBD vacancies was “probably a temporary trend, not a structural market shift,” and that “the amenities of CBDs and urban cores should eventually lure back occupiers.
“Until this demand rebounds, it won’t be clear whether suburban outperformance is temporary,” it said.
It is now clear that the outperformance was indeed temporary, according to new statistics from CoStar Group. It reports that recently net absorption has turned sharply negative in the suburbs, with nearly 50% of all suburban occupancy lost since 2020 occurring in the past 12 months. Prior to this, office occupiers vacated more than 200 million square feet with 54% occurring in CBDs and 20% occurring in suburban offices since April 2020.
Or put another way, from 2020 to 2022, the suburbs in most US markets saw positive demand for office space. That changed last year with suburban offices losing occupancy in all but the nation’s smallest markets, those with less than $50 billion in asset value.
CoStar points to San Francisco as an example of this about face. In the first three years of the current demand cycle, San Francisco saw a striking amount of occupancy losses approaching 1,500 basis points, or 15%, of inventory in its central business district. Suburban San Francisco, on the other hand, posted positive net absorption in the first few years of the decade, with tenants absorbing nearly 330 basis points of inventory from 2020-2022. That trajectory did not last, however, as all the space and then some was returned to the market in 2023.
So what precipitated this trend? Actually it is not something unique to the suburbs but rather the same dynamics that are impacting all office markets are finally being felt in the suburbs now, explains CoStar’s National Director of Office Analytics Phil Mobley.
Occupiers have stopped kicking the can down the road and in the last 12 to 18 months more have made long-term decisions about their office space, he tells GlobeSt.com. “There has generally been less renewal of space than what we would have considered normal in the past and more tenants are giving back space or relocating and taking less space or just shrinking in place.”
This trend has been apparent in CBDs and downtown neighborhoods for some time – it just took longer to start happening in the suburbs, Mobley says. “The space in the suburbs tends to be less expensive so there wasn’t as much pressure to make a decision.”