Flight to Quality Phenomenon Continues to Play Out

Two years into the pandemic, businesses have started to open back up, while political and corporate leaders are urging people to move back to downtowns. Despite this, office assets remain relatively empty, and it’s unlikely that office-using levels will reach those from February 2020 again, according to the latest CommercialEdge office market report.

Meanwhile, companies are trying to lure back workers to the office by betting on amenitized office buildings, further fueling the flight-to-quality trend amplified by the pandemic. As a result, the average sale price for Class A assets in the last quarter of 2021 was 15 percent higher than in 2019. As a comparison, Class B buildings recorded a 6 percent increase during the same time frame. This translates into new opportunities—and challenges—for Class B and C assets, which will likely become targets for conversions and redevelopments.

Office transaction volume equaled $12 billion in the first two months of 2022. Office assets traded at an average $284 per square foot at the end of February, with lab space generating heightened investor activity. Sales were concentrated in the Bay Area, where $918 million worth of office assets changed hands year-to-date as of February.

The national office vacancy rate clocked in at 15.7 percent in February, 70 basis points higher on a year-over-year basis and unchanged from the month prior. National average full-service equivalent listing rates averaged $38.62 per square foot at the end of February, up 120 basis points year-over-year. With new stock coming online, office listing rates reached new heights in markets such as Tampa, Fla., averaging $29.70 per square foot in February, or a 6.2 percent increase year-over-year.

The office-using sector added 130,000 new jobs in February. Although there were 2 million fewer office jobs in February 2022 than in February 2020, all three office-using sectors have fully recovered from pre-pandemic levels. The strongest performance was recorded in the professional and business services sector, which grew between 5 percent and 6 percent year-over-year in recent months.

Read the full CommercialEdge office report.