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Is the flight to quality trend in the office market for 2024 overrated? Strengthening? Somewhere in between? Let’s dig into the details.

According to a Wall Street Journal article, “The Real-Estate Downturn Comes for America’s Premier Office Towers”, leasing volumes and asking rents are now falling at premier Class A office towers (which includes new construction) nationally after they outpaced the rest of the market earlier in the pandemic. However, the article also notes that office building out-performers like SL Green’s One Vanderbilt leased up during the pandemic even as the building boasted $300 per square foot asking rents and levels of new construction and future deliveries are drying up and inventory is low.

CompStak’s data reveals a slightly different trend when examining select major markets concerning the performance of Prime Class A buildings, characterized as trophy, new construction, and/or recently renovated office spaces. While asking rents may show a decline, as per data cited in the article from CBRE, this could be attributed to reduced availability or the prior leasing of highest-priced, top-tier spaces within these prestigious, newly constructed towers. ICYMI, CompStak compiled the top ten most valuable leases completed in Manhattan last year, and new construction was absent on the list for the first time since the list began in 2019. However, when evaluating average effective rents for new leases closed in Prime Class A space, effective rents have still increased for the past three consecutive years though their pace of growth slowed in 2023, according to CompStak’s data. Meanwhile, effective rents for other Class A transactions fell from 2022 levels, while Class B/C rents increased about 2% year over year. Average transaction sizes reveal a slightly different story as they have yet to recover to the pre-2020 levels reached for prime Class A transactions or Class B or C space, where they have declined for the past three years.

More CompStats For the News

🎯 Meta, which also celebrated its 20th birthday this week, is making the news again for adding sublease space in Los Angeles, in yet another unwanted chapter in the office pullback from the tech sector. According to the Commercial Observer, the tech behomoth will put about 130,000 square feet of space on the market for sublease in Tishman Speyer’s Brickyard development in Playa Vista or an area often called “Silicon Beach”.

Despite this pullback, TAMI tenants executing direct lease transactions have still done so at effective rents that outpace the rest of the market through 2023 in CompStak’s data in the Los Angeles market.. The average effective rent for TAMI leases signed in 2023 was up 3.5% from 2019 in Los Angeles County, while all other leases’ effective rents were down by 5.2% over the same time period. Higher priced deals completed in 2023 from TAMI tenants included a 93,000-square-foot expansion from Apple at The Campus at Playa Vista, also located in “Silicon Beach” and deals from NBC Universal and Chernin Entertainment at Clarion Partners’  i|o at Playa Vista at 12180 Millennium Drive, also situated in the vibrant tech hub. This area still continues to have a robust concentration of TAMI tenants—according to CompStak’s data TAMI tenants account for 54% of current leased space in the Santa Monica and Lower Westside submarkets.

📈 Trina Solar, a Chinese manufacturer of solar panels is expanding to the United States with its announced lease of a 1.35 million-square-foot plant in southern Dallas County, Texas. This maker of photovoltaic panels and heating systems will move into 1200 North Sunrise Road in Wilmer, which was completed last year by Dallas-based Champion Partners and Chicago’s Cresset Partners.This just-inked deal is now the largest transaction in the Dallas-Ft. Worth industrial market over the previous 12 months, according to CompStak data. It surpasses a 1.04 million-square-foot lease from DSV, a Danish transport and logistics company, at 3701 Midpoint Drive, Kimberly-Clark’s renewal and expansion for more than 870,000 square feet at 4808 Mountain Creek Parkway, and DHL’s lease completed at 2340 Providence Drive for 581,000 square feet, which all took place in 2023.

💸 Demand for large industrial warehouse space is slowing as tenants signed fewer leases of 1 million square feet and above in 2023 after a record year in 2022, according to a new CBRE report. The drop in these large deals was most apparent in the top three markets for such spaces in CBRE’s analysis: Pennsylvania’s I-78/81 corridor, Dallas-Ft. Worth, and Inland Empire. The I-78/81 corridor, which is part of CompStak’s Philadelphia – Central PA – DE – So NJ market, was the only one of these three major markets in which the average transaction size rose from 2022 to 2023, according to CompStak data. The average deal was 215,167 square feet in size in 2023, a 27.4% year-over-year increase from the previous year. Additionally, the industrial starting rent in the Philadelphia market experienced the greatest year-over-year increase for deals of over 100,000 square feet in size to $9.90 per square foot, per CompStak data.

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