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  • Writer's pictureRealFacts Editorial Team

Prime Office Buildings Benefit from New Working Patterns & Tenant Preferences

office building lobby

As the U.S. office market continues to evolve post-pandemic, a distinct divide is emerging between prime and non-prime office buildings. CBRE Research and CBRE Econometric Advisors have analyzed this trend, highlighting the growing appeal and resilience of prime office spaces. Representing just 8% of total U.S. office space by square footage and a mere 2% by building count, these prime office buildings are defining the future of commercial real estate.

The Appeal of Prime Office Buildings

Prime office buildings are the crème de la crème of commercial real estate. These buildings, characterized by their top-notch design, extensive amenities, and strategic locations, offer a superior workplace experience. They typically feature ample parking, advanced security measures, fitness centers, social lounges, outdoor spaces, coworking areas, diverse dining options, touchless technology, and sustainability features. Located in desirable neighborhoods with easy access to public transit and walkable amenities, these buildings prioritize occupant productivity and well-being.

Performance Metrics: Prime vs. Non-Prime

The performance gap between prime and non-prime office buildings has widened significantly. As of Q1 2024, the vacancy rate for prime office buildings stood at 14.8%, a full 4.5 percentage points lower than that of non-prime buildings. Over the past four years, prime office spaces have experienced a net absorption of 49 million square feet, in stark contrast to the negative absorption of 170 million square feet for non-prime spaces.

Graph of prime vs non-prime office vacanct rates

The rent premium for prime office space has also surged, increasing from 60% in Q2 2018 to 84% in Q1 2024. This substantial premium underscores the high demand for premium office accommodations, driven by occupiers’ preference for quality spaces that enhance the workplace experience and aid in talent recruitment.

Graph of asking rent

Market Dynamics and Future Trends

Graph of supply and demand

Prime office buildings are not only performing well but are also expected to see continued success. The availability of prime office space is below market averages in most regions, and the current construction pipeline suggests that this trend will persist. With strong preleasing rates for new prime constructions, the vacancy rate for prime spaces is projected to return to its pre-pandemic level of 8.2% by 2027.

graph of vacancy rate

The demand for prime office space is expected to remain robust, driven by occupiers seeking high-quality environments. Nearly 60% of respondents to CBRE's latest Office Occupier Sentiment Survey indicated that they are considering relocating to higher-quality spaces. Proximity to public transit and green certifications are among the most sought-after features, with many occupiers willing to pay a premium for these attributes.

Regional Insights and Opportunities

The divide between prime and non-prime office space is evident across various markets. In downtown areas, 65% of markets tracked by CBRE had a lower prime office vacancy rate compared to the overall downtown rate. Similarly, 73% of suburban markets had a lower prime office vacancy rate compared to the overall suburban rate.

Graph of prime completions

Markets such as Kansas City, Midtown Manhattan, and Dallas exemplify the growing scarcity of prime office space. For instance, Kansas City's prime office vacancy rate is only 3.3%, significantly lower than its overall rate of 17.9%. Similarly, Midtown Manhattan’s prime office vacancy rate is 11.4%, compared to Manhattan’s overall vacancy rate of 15.6%.

graph of downtown prime vs overall downtown prime

Strategic Moves for Landlords and Tenants

graph of suburban vacancy rate

As prime office space becomes scarcer, landlords and tenants must adapt strategically. Landlords can capitalize on the overflow demand by upgrading their buildings to include in-demand amenities, such as top-rated indoor air quality systems, electric vehicle charging stations, and shared meeting spaces.

Tenants, especially those nearing lease expiration, should consider starting their search for new spaces early. Early planning can help secure prime spaces and negotiate favorable lease terms before availability tightens further.

The rise of prime office buildings represents a significant shift in the U.S. commercial real estate landscape. As occupiers increasingly prioritize quality and amenities, prime office spaces will continue to command a premium and shape the future of the market. For investors, landlords, and tenants, understanding and adapting to these trends will be crucial for success in the evolving office market.


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