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Suburban Offices Pace Real Estate Recovery

September 24, 1996|From Bloomberg Business News

Suburban office buildings dominated the real estate recovery again in the second quarter as vacancy rates shrank and rents rose, helping to push U.S. commercial real estate prices to their highest levels since late 1991, according to an industry report released Monday.

"The market is as healthy as it's been in recent memory," said Dan O'Connor, executive editor of the quarterly report National Real Estate Index.

Gains in suburban office properties, long sought after by companies fleeing expensive downtown areas, helped push the composite price index up 1.4% for the quarter. That makes the 13th straight quarter that the index--which also includes downtown offices, warehouses, shopping centers and apartments--has risen. The results come on the heels of a 0.7% gain for the first quarter.

The index tracks price and rent trends in 57 metropolitan areas. It is up 5% for the year to its highest point since September 1991. California paced the rise, with prices appreciating at an annualized rate of about 22%, the report said.

The report is published by Newport Beach-based Koll Co. and edited by accounting firm E&Y Kenneth Leventhal.

Spurred by a strong economy and better-than-expected job gains and the continuing trend of companies moving out of downtowns for less-expensive space, the value of offices in the suburbs rose an average 2.8% for the three months ended June 30, according to the study. Rents rose 2% for the quarter.

Although such trends are good for landlords, they are less than welcome for companies seeking to leave high-rent downtown areas. Fewer concessions as well as higher prices in many locations are what companies are finding in the traditionally cheaper suburbs. At the same time, this trend is just beginning to strengthen the center-city office rental market, which has been in a long slump.

The national vacancy rate for suburban office properties has fallen to about 12% since peaking at just above 21% at the end of 1990, according to CB Commercial Real Estate Group Inc.

Properties in the West and Sunbelt states turned in the best showing for the quarter, with prices up 5.4% and rents rising about 3%, National Real Estate said.

The index measuring apartment performance rose 2.4% to $69.59 a square foot, after a 1.1% gain the previous quarter. Average rental rates increased 1.4% for the quarter to $10.92

Apartments in California and certain Rustbelt areas paced the sector.

For the 12-month period, the apartment index rose 8.4%, although new construction and a vibrant housing market threaten to keep future gains modest.

The industrial property index posted a 0.7% gain to $35.08 a square foot. The index is now up 4.6% over the previous 12 months. Rents rose 5% in the year.

Construction rose 60% last year to almost 46 million square feet, according to real estate broker Cushman & Wakefield Inc.

The downtown office index rose 0.6% for the quarter and 3.7% for the year to $147 a square foot. Rents rose 1.3% to $23.13 a square foot.

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