Prime Office Buildings Outperform as Large CBDs See an Accelerated Flight to Quality
May 26, 2022, 14:00 PM
San Francisco, Boston, Manhattan, Washington, D.C. and Seattle saw 4.4% average job growth in 2021, yet total occupancy fell by 6.6 million sq. ft. across these markets. The driver of the decline was weak or negative absorption in non-prime space (Figure 1).
Tenant preference for the best office properties can be seen in both absorption and rent trends. Since 2018, starting rents across these five CBDs have grown 13% at prime buildings versus only 2.5% in non-prime buildings (Figure 2). The trend is not uniform across markets, however. For example, a large sublease availability is weighing on prime space absorption in Seattle.
With changing work patterns and tight labor markets, occupier flight to quality is expected to persist, further widening the performance gap between the best buildings and older, more commoditized assets.