Office Market Report Overview: Part Four

SKIP AHEAD TO

• Gateway Concession Ratios Are Highest for Non-Prime Class A Buildings
• Among Top Deals by Lease Value, the Average Lease Term for New Leases Outpaced the Average for Renewals
• Majority of Top Value Deals of 2023 Were Signed by FIRE and TAMI Tenants
• Landlords Captured Top Value Leases From Life Science in Boston and from Legal Services Tenants in NYC and Washington, D.C., Markets

As a part of CompStak’s Office Market Report Overview, we’re jumping into concessions and top value office leases.

Download the full report here!

Gateway Concession Ratios Are Highest for Non-Prime Class A Buildings

Non-Prime Class A buildings, defined as Class A buildings outside of new construction, trophy, or recently renovated buildings, have had the highest concession ratios for six consecutive quarters. Non-Prime Class A concession ratios averaged 14.2% during 2023, 1.7 percentage points above the five-year quarterly average. Meanwhile, concession ratios for Prime Class A properties plateaued during 2023 but still outpaced the five-year quarterly average by .70 percentage points.

Landlords are yielding more of potential deal value to concessions than before the pandemic, but this differs across building classes and relates to demand. For Class B/C buildings, concession ratios rose steadily from mid-2021 through mid-2022 but have moderated since, averaging about 11.5% during 2023, pacing close to the five-year quarterly average. This can indicate that Class B/C landlords may be less willing to offer higher concessions relative to deal value.

Among Top Deals by Lease Value, the Average Lease Term for New Leases Outpaced the Average for Renewals

CompStak evaluated the top ranking deals by total lease value in major markets, focusing on those ranking within the top five. In 2023, these most valuable office deals were concentrated in new transactions and also completed by tenants in the FIRE, TAMI, Legal Services, Government, and Life Science sectors. Landlords capturing these top transactions included Boston Properties, Stonebridge Properties, The Rockefeller Group, and The Sobrato Organization.

These transactions also tended to be located in urban areas either in or near a central business or financial district. Among the most valuable office deals analyzed in 2023, the average size of new leases was smaller compared to 2022, with an average term almost 24% longer compared to that of renewals. Also, several of these were signed in Boston and came with some of the highest work value nationwide, averaging over $210 per square foot. This is no surprise, as Boston remains a top market for Life Science tenants, which require specialized and highly customized spaces.

Washington, D.C., saw some of the longest-term leases signed by government tenants and consequently accompanied by considerable free-rent concessions. The office market in the nation’s capital is heavily reliant on government agencies and legal firms, some of whom managed to extract significant concessions from landlords.

Majority of Top Value Deals of 2023 Were Signed by FIRE and TAMI Tenants

Among the top five most valuable deals completed in these select markets in 2023, tenants in the FIRE and TAMI sectors signed the majority. Sony completed top transactions by overall lease value in both the Bay Area and Los Angeles markets.

ADD IN INFOGRAM HERE – TABLE 14

Landlords Captured Top Value Leases From Life Science in Boston and from Legal Services Tenants in NYC and Washington, D.C., Markets

Two New York City law firms topped the list for most valuable deals among the markets analyzed. They included a lease from Davis Polk & Wardwell at 450 Lexington Avenue and Paul, Weiss, Rifkind, Wharton & Garrison’s relocation to 1345 Avenue of the Americas. Despite market headwinds, Washington, D.C., also captured sizable deals by value from tenants in the Legal Services and Government sectors.

Get more insights into U.S. gateway office markets and download the full report!