Busting the urban myth. Suburban office markets do outperform CBD

NAREIM Dialogues Fall 2021 issue

October 25, 2021


Conventional wisdom has it that investing in office properties in central business districts (CBDs) of major US metros provides the best opportunity for steady income, capital appreciation and strong total returns. 


This thinking has resulted in major institutional investors, both domestic and international, allocating enormous amounts of capital to CBDs in hopes of achieving superior nominal and relative returns. 


Between 2001 and 2010, this was true as the NCREIF Property Index data shows that CBD office assets, notably in global gateways, had exceptional total returns. 


The tables turned during the decade that followed (2011–2021). In the midst of the longest economic expansion in US history, suburban office property total returns (8.4%) outperformed CBDs (7.7%). However, not all suburban markets are equal — global gateway suburban office properties have been standouts. 


Bailard's Jamil Harkness challenges the urban myth and explains why suburban office properties in the gateway markets had higher nominal and relative returns than their CBD peers, digging into:

  • Methodology

  • Income returns, appreciation returns and total returns by market

  • Standard deviation of quarterly index returns for markets

  • Sharpe ratios for markets

  • The missed opportunity


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