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Despite slowing demand, a new report from Cushman & Wakefield shows that occupiers are still seeking out newer Class A assets when deciding where to build out a new office.
“The physical office will continue to have some role to play in the future of work,” said Rebecca Rockey, an economist at Cushman & Wakefield. “And although there are a myriad of occupiers with vastly different needs, we know that newer, better quality office product, which usually outperforms, did so to a greater degree during the pandemic. And that trend is expected to stick.”
Class A offices have historically performed the best within the office sector, whether it is during expansions or recessions. According to Rockey, prior expansions saw Class A offices account for a “disproportionate amount” of absorption compared to other products.
However, when demand is in the negatives, Class A accounts for a lower amount of net absorption. For instance, during the last three recessions, Class A made up an average of 38.5% of negative absorption.
Even after the pandemic swept through the industry, Rockey says that “the same demand trends that existed pre-COVID-19 remain true.” In fact, Class A products did not see the impact that other product types did and accounted for 50% of negative absorption this year.
“Given the unique aspects of COVID-19, while the timing of a pick-up in absorption is less certain than usual, it is clear that Class A will outpace the overall market as it has in early stages of prior expansions,” Rockey wrote in the report.
