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Older office assets trading occupancy for rent in a high-demand submarket. Is the strategy paying off?

  • ​In the last few years, Uptown office rents and occupancy have been increasing, especially for Class A assets.
  • Class A full service rents are up 38 percent since mid-2011, with occupancy now averaging 88.7 percent.
  • Not all assets have performed equally.  Ten years ago, properties built in the mid-1980s to 1990 were at 90 percent occupancy.  That rate was won at a rent “discount” of $8 to $9 per square foot from the newer stock.   
  • Today, the older properties have pushed rents as Uptown’s Class A sector has heated-up.  Currently, the prior $8-gap has closed to $4 per square foot – resulting in an average triple net rent of $21.57 for these properties.
  • While rents have pushed higher, these mid-1980s to 1990 assets have lost occupancy, which is now 81.6 percent.
  • Building operating income has also been pressured as expenses increased from $10 to $16.50 per square foot.
  • Adjusting the current triple net rent by occupancy results in “net income – per occupied square foot”, which is currently running $17.60 per square foot for these assets.
Source: JLL Research

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