There is Nuance to the Office Story
The sobering headlines about the office sector are largely accurate: vacancy rates are at historic highs and sales comps, while few, reveal a stark loss in value. What’s often lost amid the doom-and-gloom, however, are the stark differences between office asset classes.
Prime office buildings almost always have lower vacancy than their Class A counterparts. But today the spread has widened as tenants are increasingly eschewing commodity buildings in favor of best-in-class office space.
Asking rents, however, mask the dichotomy in building performance. Both Prime and Class A asking rents today are above 2018 levels. This makes sense because landlords are often loathed to drop asking rents and prefer to offer more generous incentive packages to attract tenants.
A more nuanced measure of rent values – what we call economic rent – provides a more revealing picture. Prime economic rent, which is computed by multiplying asking rent by market occupancy, stands 14% above 2018 levels and near the 2020 peak. In contrast, economic rent for Class A buildings, which have borne the brunt of the occupancy losses, are down 10% since the pandemic radically changed office cultures and companies began trading up to higher quality space.
Figure 1: Asking and Economic Rent Indices (Q1 2018 = 100)
Looking for this chart's underlying data?
If you are an active CBRE Econometric Advisors subscriber, log in to the CBRE EA platform and navigate to our latest insights to download the chart's underlying data.
For more information on becoming a CBRE Econometric Advisors subscriber, contact [email protected].
Associate, Investments at Group 1001
1 年It will be intriguing to observe the strategies that owners of Class A buildings will adopt to counter the decline in economic rent and entice tenants in the present market conditions. I anticipate an increase in flexible lease terms, coupled with infrastructure enhancements that elevate the tenant experience by offering contemporary amenities and bolstering operational efficiency...high-speed internet connectivity, smart building systems, and contactless entry systems, all of which streamline remote work and collaboration processes.