U.S. Office Leasing: To CBD or not to CBD?

21st October 2010

While leasing has improved nationally from third quarter, 2009 to the present, there are differences in the pace of improvement between and within markets and certainly between CBDs (Central Business Districts) and Non CBDs (suburban markets). In the CBDs leasing is up 31.6% year over year while in the suburbs it is has increased by 20.2%.

Houston, Philadelphia, Midtown, NY, San Francisco and Washington, D.C. have enjoyed strong  leasing improvement in their urban core since last year driven by employment growth in sectors such as energy, healthcare, technology and, of course, government.  But you really have to peel back the onion and dig into the data to see exactly what’s happening. The cliché, “there are liars, damn liars and statistics”, can ring true if you’re not careful when looking at the data.

First of all, remember that last year was particularly weak in terms of activity so anything is bound to look like an improvement. Secondly, never look at one variable in isolation. Take into consideration absorption as well and read about the markets in detail (in our market reports on our Knowledge Center) to see if there are any large firms and major transactions that could be an anomaly and are skewing the numbers at a given point on time. Finally, don’t generalize and assume the entire market is doing well. In Washington, D.C. this year the non core markets are seeing more activity than the core markets of East End and CBD.  The reverse was true last year. In San Francisco SOMA (South of Market) has been the focus of activity and interest because of the characteristics of the space and tenant mix – more tech oriented than NOMA (North of Market – I know you know) which is really the financial core.


Suburban leasing has improved as well but it’s certainly not as robust as the CBD rebound. Denver has a good mix of tenants fueling activity including some defense contractors, telecomm companies, healthcare and natural resource firms.  Philadelphia also enjoys an abundance of pharmaceutical and healthcare firms as well.

As you can see from the chart above, year over year improvement trails off after a handful of markets. Suburban markets will return to a healthy position in the real estate cycle but that will be even slower and more gradual than the recovery in the CBDs.

Maria Sicola

Americas Research Group

San Francisco


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