Rent Gap Between Trophy Offices And All Others Reaches Record High

One Vanderbilt
Bisnow/Miriam Hall
Sl Green's One Vanderbilt

The office sector has had an uneven recovery from the coronavirus pandemic in 2021, with an outsized portion of recent successes going to the top of the market.

Owners of the most expensive 10% of office buildings across the country are negotiating effective rents 54% higher than the rest of the office market, according to data from analytics firm View The Space reported by The Wall Street Journal. That gap has never been larger since VTS started tracking such data in 2012. In the two years before the pandemic hit, the gap was 43%.

Office-using companies, rather than risk employees quitting over return-to-work mandates, have instead preferred to lure their workers back to in-person work with amenities, Commercial Observer reports. The newest, fanciest buildings are by far the best equipped to provide such amenities and, as a result, have had leasing success in the past few months despite record levels of vacancy and sublease availability, according to JLL data reported by the WSJ.

After opening in September 2020 with 70% occupancy, SL Green Realty's $3B trophy office tower One Vanderbilt has reached 90% occupancy in the year since with rents between $150 and $325 per SF, the WSJ reports. In Miami, 830 Brickell, the first new construction, Class-A office building in the city in over a decade, has increased asking rents by $23 per SF since the pandemic's outbreak and lured tenants like Microsoft, the WSJ reports.

After most of the year saw surprisingly consistent growth for office demand, VTS reported a decrease in new demand in September, suggesting that the office market overall has stabilized after a period of recovery. The average square footage of new office leases has also begun to creep back up in the past two quarters after a steep drop from the beginning of 2020, CoStar reports.

Indicators of stabilization in the market coming as the gap in rents between the trophy class and the rest of the office market is so wide could be a sign that the flight to quality is more than a response to an economic downturn. With tenants paying premiums for trophy space while signing longer-term and larger leases, it could be a sign that in the age of widespread remote work, trophy space is the only kind of office worth having.

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