As the age of hybrid work sets in, companies are banking on the idea that better offices attract better employees, and that’s certainly getting reflected in office leasing activity. A recent report from CBRE revealed that since 2021, top-tier office buildings’ effective rents have increased while those of lower-quality assets have decreased.
Since 2019, CBRE has examined more than 2,700 lease agreements in 12 major office markets and classified buildings as top tier (Class-A or Class-A+) or lower tier (Class B or C). CBRE looked specifically at effective rents, which account for building owners’ concessions (like rent abatement and increased tenant allowances), for its analysis. According to the report, top-tier properties’ average effective rents rose by 3.8 percent in 2021 and by 6.7 percent so far this year. On the other hand, lower-tier properties’ average effective rents decreased by 3.4 percent last year and have plummeted another 1.1 percent this year. The rising number of lease concessions seemed to be a contributor to the falling lease rates for buildings in lower tiers.
The rise in demand for top-tier office spaces looks to be a direct result of office workers’ insistence to work remotely at least part of the week. This has led to office occupiers favoring high-quality workplaces in the last two years as a way to encourage employees to work from home and provide them with the tools they need to be effective there. But attracting top talent isn’t the only reason for this trend. Commercial real estate investors typically move to acquire higher-quality real estate to better hedge against economic downturns, and offices are no exception.