In recent years, the gap between prime and non-prime office buildings has grown wider, fueled by shifting workplace dynamics, hybrid work models, and tenant demands for higher-quality spaces. The preference for prime office spaces—defined by high design standards, desirable amenities, and strategic locations—has sharply increased, while the performance of non-prime office spaces has weakened. These trends are poised to reshape the office market, with prime spaces becoming even more sought-after, especially as the construction of new prime office buildings slows down.
A Growing Divide: Prime vs. Non-Prime Office Performance
CBRE Research and CBRE Econometric Advisors recently analyzed data from 830 prime office buildings, accounting for a total of 338 million square feet across 57 U.S. markets. Prime office buildings represent only 8% of total U.S. office space by square footage but 60% of these spaces were built in the last decade, showcasing modern designs with wellness standards, sustainability features, and a robust mix of amenities. In contrast, non-prime buildings, often older and lacking these features, continue to experience rising vacancy rates and negative net absorption.
As of Q1 2024, the vacancy rate for prime office buildings stood at 14.8%, 4.5 percentage points lower than that of non-prime spaces. The prime office market has recorded 49 million square feet of positive net absorption between Q1 2020 and Q1 2024, while non-prime buildings have seen a loss of 170 million square feet during the same period. The demand for prime office space remains robust, driven by tenants’ increased preference for high-quality environments that offer enhanced workplace experiences, improved employee well-being, and a competitive edge in attracting top talent.
The Premium Rent for Prime Space
The widening gap in performance between prime and non-prime buildings is further reflected in rent premiums. As of Q1 2024, the average asking rent for prime office space was 84% higher than that for non-prime buildings. This rent disparity has grown significantly from just 60% in Q2 2018, highlighting the ongoing flight to quality by occupiers. Tenants are willing to pay a premium for office spaces that provide greater comfort, productivity, and flexibility, all of which are increasingly important as companies adapt to new hybrid working models.
The increase in prime office rents is also tied to the shrinking pipeline of new prime office space. In many markets, the availability of prime office space has already fallen below market averages, and the construction of new prime buildings has slowed considerably. With strong preleasing activity for existing and upcoming prime office projects, vacancy rates for these spaces are expected to revert to pre-pandemic levels—around 8.2%—by 2027. This trend suggests that prime office spaces will continue to command a premium and remain a critical element of the commercial real estate market.
Tenant Preferences: Sustainability, Proximity, and Workplace Quality
Modern tenants are increasingly prioritizing the quality of their office environments. According to CBRE’s Office Occupier Sentiment Survey, nearly 60% of respondents are considering relocating to higher-quality spaces. The demand for prime office space is driven by several factors, with proximity to public transit emerging as one of the most sought-after features. Office spaces near major transit hubs are appealing because they offer employees a more convenient commute, helping to foster a work-life balance and reducing time spent traveling to and from the office.
Sustainability is another key consideration for tenants. Companies are increasingly focused on meeting environmental goals, and a significant 21% of survey respondents indicated they would be willing to pay a premium for green-certified office spaces. Prime office buildings, known for their sustainability features—such as energy-efficient systems, waste reduction programs, and eco-friendly materials—are particularly attractive to tenants committed to corporate responsibility.
Moreover, the flexibility that prime buildings offer, with amenities such as coworking spaces, social lounges, fitness centers, and touchless technologies, aligns with the evolving needs of companies embracing hybrid work models. As tenants seek spaces that offer both flexibility and high-end amenities, prime office buildings stand out as the best option for those looking to adapt to new working patterns.
The Future of Prime Office Space: Limited Supply & Growing Demand
One of the most striking trends in the office market is the shrinking supply of new prime office space. As of Q1 2024, only 22 million square feet of prime office space was under construction across the U.S., and half of that is already preleased. This limited supply, coupled with ongoing demand for high-quality space, means that tenants seeking the best office environments will face fierce competition for available prime spaces. As deliveries of new prime office buildings slow down, the vacancy rate for these buildings is expected to decline, further exacerbating the divide between prime and non-prime office spaces.
By 2025, the construction of new prime office space is expected to fall to just 4 million square feet annually, less than a quarter of the pre-pandemic average. As the absorption rate for prime office spaces remains steady, with around 12 million square feet absorbed each year between 2020 and 2023, the prime vacancy rate is projected to reach its pre-pandemic level of 8.2% by 2027. Some markets may even reach this point sooner, as the availability of prime space becomes increasingly scarce.
The Overflow Effect: Secondary Markets and Mixed-Use Districts
As demand for prime office space remains high, there will likely be an overflow effect, benefiting the next tier of office buildings. These buildings, while not classified as prime, may still offer many of the features tenants desire, including quality design, good locations, and access to amenities. In vibrant, mixed-use districts, these secondary office buildings are expected to benefit from the ongoing demand for flexible workspaces, especially as companies look for high-quality alternatives to the rapidly depleting stock of prime office space.
Leveraging Technology to Capture the Demand for Prime Spaces
For commercial real estate professionals seeking to stay competitive in this evolving market, leveraging advanced technology is key. VidTech provides cutting-edge CRE videos that incorporate 4K drone footage, offering an aerial view of prime office spaces and their proximity to key landmarks such as public transit hubs. This visual approach helps investors, tenants, and brokers better understand the value and desirability of office properties, making it easier to navigate the evolving office market and capitalize on the growing demand for premium office spaces.
By using VidTech’s innovative tools, commercial real estate professionals can gain valuable insights into the dynamics of prime office buildings, helping them make more informed decisions and stay ahead in an increasingly competitive market.
Conclusion
The divide between prime and non-prime office buildings is becoming more pronounced as tenants increasingly prioritize workplace quality, sustainability, and proximity to transit. With demand for prime spaces continuing to outpace supply, commercial real estate investors, tenants, and brokers must adapt to the changing landscape. As the construction of new prime office buildings slows, the scarcity of high-quality office space will likely drive rents higher and further solidify the importance of premium office spaces in the market.
To stay ahead of these trends, leveraging innovative technologies like VidTech’s 4K drone imagery can provide a competitive edge, offering deeper insights into prime office properties and their strategic locations. With demand for premium office spaces on the rise, now is the time for commercial real estate professionals to focus on quality, sustainability, and accessibility in their investments and leasing strategies.
