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NEW YORK CITY-Cities across the nation are reaching healthy economic levels, and suburban markets are reaping the benefits. As new construction slows, vacancy rates decline and rents increase, suburbia is increasingly becoming an attractive alternative for many companies.

According to the Cushman & Wakefield US Office Market Barometer, CBDs like San Francisco, Boston and Midtown New York are experiencing above average momentum–driven by the finance and business sectors–and this will inevitably lead to rent spikes. “Space availability and rental rates in major cities are now reaching pre-economic downturn levels,” explains Maria Sicola, senior managing director of research for C&W. “The lack of space options in major cities has made the suburban markets much more attractive and viable.”

The report studies real estate performance and expectations in 43 CBDs and 53 suburban markets based on data compiled in the first half of this year.

As of mid-year, the report found total office leasing in the CBDs registered 40.5 million sf, a notch lower than mid-year 2005. Overall, the report adds, CBDs have a national vacancy rate of 11.9%, a decrease from 12.6% in the first quarter of 2006 and down 100 basis points from last year. New York City’s Midtown South led the CBD market with a 6% vacancy rate.

Conversely, suburban markets registered office leasing numbers slightly above mid-year 2005. The report found that available space in suburban markets decreased, with 15.5% overall vacancy posted at mid-year, with Los Angeles leading at 7%.

“We are at or rapidly approaching equilibrium in virtually all US CBDs,” Sicola explains. “By 2008, we will see the majority of suburban markets reaching equilibrium as well.”

According to C&W’s Barometer, the suburban markets of Oakland, CA, Los Angeles South, Minneapolis, Chicago, San Francisco, Boston, Memphis and Seattle are leading markets–all registering strong performances in the past six months and above average 24-month outlooks. More notably, suburban Chicago, Oakland, Minneapolis and Seattle will see vacancy rates drop more than 200 basis points over the next 24 months. On the rental rate front, the report predicts the suburban markets of Kansas City, Louisville, Palm Beach, FL and Miami will top $3 per sf over the next two years.

C&W’s Barometer also sees cap rates declining in CBD markets, while cap rates in suburban markets are leveling off and average closing prices per sf are rising. The report also forecasts a healthy office market through 2007 despite a declining economy, due to the office market’s dependence on regional and local drivers as well as a defined balance between supply and demand.

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