As tenants target high-end space, executed rents in CBDs are exceeding pre-pandemic levels while suburbs lag
February 15, 2023
- Jacob Rowden
- Elena Lanning
- The sharp bifurcation of office markets according to asset quality is causing counterintuitive trends in executed rental rates: although CBD submarkets have seen a sharper slowdown in leasing activity and greater occupancy loss, leases signed in high-end spaces and new construction have routinely come close to or exceeded record rental rates, and as a result weighted executed rents in CBDs are exceeding pre-pandemic levels while suburban markets lag.
- Concentration of development, particularly Trophy office development, in CBD clusters has predominantly contributed to the spread in rental performance—although CBD clusters have just a slight majority of 55% of office completions in the past five years, 54 of the 62 office assets above 25 stories that were developed since 2018 were in CBDs. Due to increasing construction costs with additional height, high-rise offices tend to be developed at significantly higher cost per s.f. and therefore include higher-end amenities, building systems and finishes.
- Appetite for high-end space continues to be strong despite recent volatility—a prominent financial services firm signed a 219,000-s.f. lease for a high-rise suite in 30 Hudson Yards during the fourth quarter at base rents in excess of $170 p.s.f.—more than double Manhattan’s average asking rent. Already in the first several weeks of the first quarter, twelve leases over 10,000 s.f. have been executed with base rents in excess of $100 p.s.f. in New York.