CHICAGO—Every major market in North America has its trophy spaces, the premier office towers with the best views, the most amenities and the highest rental rates. But the gap in rental rates between trophy space and all the rest has reached historic proportions. The most expensive offices now garner 77% more than non-trophy space, according to JLL's 2015 Digital Skyline. Average trophy rates in the first quarter of 2015 were $57.97 per square foot compared to $32.70 per square foot in non-trophy buildings. Just ten years ago, this gap was only 20.8%.

“What we saw early on in the recession was a flight to quality,” Julia Georgules, vice president, JLL Research, tells GlobeSt.com. Many corporations took advantage of the decline in rental rates to move into the most desirable spaces, putting a significant constraint on supply in these buildings. Trophy properties in the 43 markets that make up JLL's US Skyline have a vacancy rate of 10% and the rate for non-trophy assets stands at 15.1%.

The gap seemed to widen whenever a market started to recover, she adds. Once the official recession ended, for example, “we saw a lot of activity in Washington, DC and New York.” Then the energy-rich cities such as Houston saw demand escalate for trophy spaces, and finally it hit the secondary markets. Currently, the gap is most pronounced in markets that are only just beginning to see expansionary tenant activity, like Atlanta and Orange County, CA. “There is a very high demand for it,” especially in markets like Orange County that have limited amounts of trophy space and very little in the pipeline.

The tight supply and escalating rents have started to incentivize developers to launch new trophy projects. “There is a significant pipeline of construction across the US,” Georgules says. “This is the biggest development pipeline we've had in the last 10 years and 2016 and 2017 are going to be big years.”

But compared to previous business cycles, the amount of Skyline-level development is a much smaller share of overall development. Of the 84 million square feet of total office space currently under construction, about 28 million is what JLL considers trophy quality. And nearly three-quarters of that is concentrated in only nine cities, which means that most tenants will have little negotiating leverage.

Still, JLL expects builders to deliver 14.3 million square feet of new trophy space in 2016. About 37% of it is pre-leased, so at least within core cities like New York and San Francisco the new development “will be a game changer in terms of negotiating leverage,” Georgules says, and “slow down the rental rate increases.”

This does not mean, however, that the markets for trophy spaces have hit their peaks, even in the core cities, she adds. In 2007 the trophy rates hit $58.82, and when adjusted for inflation, these rents are still 12% below that peak year. “There is still room for these trophy buildings to increase rental rates.”