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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.