In this climate of on-goinghealth uncertainty, the winners in the leasing world arehigh-quality buildings that can meet changing infrastructure needs.The losers: older, lower quality properties that can't adapt.That's the conclusion of CoStar Group.

|

Based on gross leasing datacollected from the beginning of the year through mid-May, CoStarfound reduced demand for space amid a general mood of cautiousnessamong tenants. Leasing activity in the first two months of the yearstarted off strong, surpassing monthly average levels of 2016through 2019. However, leasing volume began to drop in March, aslockdowns took hold. Then, it plunged in April and May, down morethan 50% from monthly average totals in 2016 through2019. 

|

Here are the details, per CoStar:

  • Theshare of high-quality properties grew at the expense of lower-endones. The highest-quality four- and five-star space garnered a 49%share of gross leasing activity in the January 1 to May 15 periodin 2020, up 3 percentage points from its average share in the sameperiod in 2016 through 2019. 
  • Sincethe end of 2010, demand for four- and five-star space has grownfour times as fast as three-star spaces and 19 times the rate ofone- and two-star property. 
  • Older,lower-quality space is more at risk in the current environment,given the upgrade cost to meet health and safety standards thattenants now expect. Already, older space had higher vacancy ratesand weaker rent growth. 

So what's the prognosis? CoStarsays that in the near term, the weak economic environment willlikely persist, resulting in weakened office demand overall. Thatsaid, with the continuing health crisis, the preference forhigh-quality space will only accelerate in the near term in thepost stay-at-home era. 

|

Owners who can make changes to ensure a safe, healthy workenvironment will more likely retain tenants and be in a position togrow when leasing demand returns to normal, CoStar determined.Older office stock, however, risks falling intoobsolescence in the post work-from-home environment if it cannotcompete with the newer buildings to make tenants and employees feelsafe.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.