And The Trophy Goes To ... Trophy Buildings

If there was going to be a winner crowned in the slow recovery of the office market by building type, the trophy would go to its namesake. 

Trophy buildings average 13% vacancy nationally compared to 17.9% for Class-A buildings, Newmark said in a report released Tuesday. 

In the six strongest, most mature U.S. submarkets — LA’s Century City, Uptown Dallas, Chicago’s West Loop, D.C.’s central business district, Manhattan’s Park Avenue and Boston’s Back Bay — the divide is even steeper. Trophy buildings in those areas average 10.5% office vacancy vs. 16.5% for Class-A buildings. 

That vacancy has also held stable since before the pandemic. It is at 10.5% now vs. 11% prepandemic, and Newmark said this indicates trophy properties' will be resilient in a vulnerable market. 

Factors like location, tenant makeup and surrounding buildings are driving lower trophy vacancies, even though they can run tenants a 25% to 40% premium on rent over Class-A, Newmark said. Premier offices in the best submarkets benefit from high populations, central locations, office amenities and a diverse tenant pool.

In the last two years, 23.1% of tenants signing new leases in mature submarkets favor trophy assets, the largest share, followed by 14.9% going to Class-A. The number is slightly lower outside of the top regions, with 17.5% of new entrants going to top-tier space vs. 13.3% going to Class-A, but the trend still holds true.

And there is still room for trophies to run, with most mature submarkets not yet at their peak — though Park Avenue and Back Bay are getting close, Newmark said. 

At the same time, Class-A buildings are contracting due to companies within them moving up to trophies as they consolidate their footprints.

An example of this is a lease Bank of America signed in 2023 in Uptown Dallas, cutting its office space in half with a 238K SF lease in a newer trophy building. It had occupied its namesake Downtown Dallas building since 1985.