From January until mid-May, four- and five-star office space represented 49% of gross leasing activity, representing a 3% jump compared to previous years. Lower-quality buildings attracted an even smaller share of new deals than in previous years, according to new data from CoStar Group.
Using their building rating system, which evaluates characteristics like structural and systems specifications as well as amenities, the commercial real estate site traces the jump this year to a trend stretching back until at least 2010. It is also one likely accelerated by the coronavirus pandemic, according to CoStar Group Managing Consultant Nancy Muscatello.
"This is not a new trend. We have been seeing over the course of that whole last entire cycle office demand accruing towards higher-quality, better-located buildings, typically those that are newer, that offer more amenities," Muscatello said.
"Now, we would expect these trends to accelerate, just adding on this extra layer of slower economic growth, even more than was expected prior to the pandemic, and also a focus on the features in a building that will promote health," she said.
Since 2010, demand for four- and five-star offices has grown at four times the rate of that for three-star properties and 19 times the rate of that for one- and two-star offices, according to CoStar.
Muscatello said the trend could be attributed to demographic preferences and the economic need for offices with increased density.
"As the baby boomers are moving further into retirement age, there have just been further folks in that working-age cohort, so that augurs for less demand," Muscatello said. "And you have this overall trend in space use, at least over the last cycle, towards more densities, and that augurs well for less space.
An acceleration of a performance divide between newer and older properties can be expected partially as a result of the pandemic, according to JLL Managing Director Chris Roeder.