Suburban markets set brisk pace in demanding office market.

Demand for office space continues at a brisk pace in North America, with suburban markets evidencing particularly strong growth fueled by economic expansion, according to 2006 Office Insight, a semi-annual report issued by the world's leading commercial real estate services firm, CB Richard Ellis. The report also projects that during the next two years rents will rise and positive absorption will continue.

In the early stages of the economic recovery from 2003 through 2005, suburban demand increased at a faster rate than downtown demand growth. However, as the economic expansion has progressed, there has been significant pick-up in the pace of downtown demand growth.

"Increased demand for office space translates directly into lower vacancy rates, which are falling both downtown and in the suburbs," said Craig Thomas, director of research and systems for Torto Wheaton, CBRE's independent research subsidiary.

"The national downtown vacancy rate is currently at 11.3%, well below the historical median, while suburban vacancy stands below its historical average at 14.2%. In this environment office rents are rising, a trend we expect to continue over the next two years."

Office Insight also reports on office market fundamentals, capital market trends and the impact of broader economic conditions on the U.S. and Canadian office markets. Some other findings include:

* In the U.S. there are currently nine metropolitan areas where trend supply growth exceeds 20-year averages. Las Vegas leads the pack with trend completions measuring 178% above the historical average. After Las Vegas, strong supply is mostly occurring in Sunbelt markets, with Orlando, San Diego, Sacramento, Phoenix, Jacksonville and Ventura, CA displaying completions above the long-run trend.

* Calgary leads North American markets with nominal rent growth of 31% year-to-year; Vancouver occupies second place with 14% rent growth; and Honolulu rounds out the top three with 13% year-to-year rent growth.

* Boston and. Washington are also performing well in the U.S., with Boston displaying the sharpest turnaround of any metropolitan area in the nation as rent growth recovered from -3.6% one year ago to 8.8% currently.

* The prolonged decline in global cap rates has largely come to an end. In response to a maturing global economic expansion central banks are now generally tightening interest rates, signaling the end of the long-running era of cap rate compression and shifting appreciation to a rising cash yield.