- Despite overall high office vacancies, top-tier office space in cities like NYC, Miami, and LA is in short supply due to high demand for premium amenities and prime locations.
- Developers, including Hines, BXP, and SL Green Realty, are planning new office projects, most of which will take years to complete.
- Premium office rents have surged, with Midtown Manhattan’s Park Avenue commanding over $150 PSF, up 20% in two years.
- Office vacancy rates in non-premium segments remain high, with a national vacancy rate of 20.4% by the end of 2024, while prime space is projected to tighten further.
The US office market is experiencing a paradox: while overall vacancies remain near historic highs, demand for premium office space in key markets is outpacing supply.
Tenants seeking top-tier spaces with upscale amenities are struggling to find availability, even as aging office buildings sit vacant and underutilized, according to WSJ.
Top-Tier Offices in Demand
Prime locations like Miami’s Brickell district, New York’s Park Avenue, and Century City in Los Angeles are seeing a shortage of top-tier office spaces.
These high-demand areas are characterized by modern amenities, outdoor spaces, fitness centers, and nearby transit hubs—features that matter more than ever as big-name firms like JP Morgan (JPM) begin to mandate full-time, in-office work.
For example, McDermott Will & Emery faced limited options when searching for quality office space in Washington, DC, despite the city’s broader office surplus.
Get Smarter about what matters in CRE
Stay ahead of trends in commercial real estate with CRE Daily – the free newsletter delivering everything you need to start your day in just 5-minutes
Subscribe
The Premium Pipeline
Major developers, including Hines, BXP Inc (BXP), and SL Green Realty (SLG), are responding to the demand by planning new premium office projects.
However, with long development timelines, many of these buildings won’t be ready for occupancy for several years. SL Green plans to acquire a prime development site in NYC, while BXP recently announced plans for a 320 KSF tower near the White House, set to open in 2028.
Rising Rents, Tightening Supply
Limited supply has driven rent increases in premium locations. For example, Park Avenue rents in Manhattan have risen 20% in the last two years, reaching an average of $150 PSF.
CBRE projects that prime office vacancy rates could return to pre-pandemic levels of 8.2% within two years as demand outpaces supply.
Out With The Old
While premium spaces thrive, the broader office market faces significant challenges. Many aging properties may face conversions or demolitions due to the cost of upgrades and shifting tenant preferences.
Overall, national office vacancies hit 20.4% by the end of 2024, with distressed debt tied to older office properties reaching an 11% delinquency rate, according to Trepp.
As developers break ground on new premium office spaces, the gap between top-tier and aging properties will likely widen. Tenants are willing to pay premium rents for quality, which means many older buildings may struggle to find occupants.
