Class-B Office Rents Are Rising. Here’s Why.
Increased competition for space in the East End and CBD has shifted the leverage in the Class-B market into the hands of landlords, despite the ongoing "flight to quality" many believed to be a death knell to Class-B space.
That’s the word from JLL SVP Scott Homa, who has shared some interesting data to help us understand the trend. The market for Class-B space is getting tight, and it doesn’t show any signs of loosening any time soon.
In fact, the supply may get even tighter as redevelopments to A, A+ and trophy products deliver, such as 2001 M St from Brookfield Properties. Several assets, like 2000 K and 2000 L, are set to be demolished or repositioned, which will further constrain the supply in the Class-B market.
With all of the redevelopment projects in the pipeline, the downtown area is facing a risk of oversaturation at the Trophy/Class-A+ level, Scott says. Class-B tenants—think nonprofit and creative sector—may continue to find themselves slowly priced out of the market.
So where will these tenants wind up? Look for co-working space to continue on its rocket-like trajectory. The market has grown by 200% each year since 2011, and researchers are calling for the space to absolutely explode over the next five years.
